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The Demand for Cigarettes: New Evidence from South Africa

Author

Listed:
  • Alfred Kechia Mukong

    (Economics of Tobacco Control (ETCP), South African Labour and Development Research Unit (SALDRU), School of Economics, University of Cape Town)

  • Ernest Ngeh Tingum

    (Economics of Tobacco Control (ETCP), South African Labour and Development Research Unit (SALDRU), School of Economics, University of Cape Town)

Abstract

This paper estimates the price elasticity of demand for cigarettes in South Africa, a country that has currently experienced a transition in the cigarette market, from a near monopoly to a more competitive market structure. Based on longitudinal data drawn from the South Africa National Income and Dynamic Study (NIDS: 2008 - 2014), we compare the results of the conditional elasticity (random and fixed effect panel estimates) and total elasticity of demand (two-part model). Like previous evidence into cigarette prices, we obtain negative price elasticity of demand for cigarettes, with the total price elasticity significantly larger than the conditional elasticity. For the total elasticity, a 10% increase in price reduces cigarette consumption by 4.3% for the economy brands and 6.9% for the mid-price brands. However, we nd that over the same period, estimates from the fixed effect model are statistically insignifi cant. This is probably due to the limited within variation in both in cigarette consumption and cigarette prices. Thus, with between variation models, increased tobacco taxes can, in the presence of the changing market structure, remain a desirable policy tool for reducing cigarette consumption.

Suggested Citation

  • Alfred Kechia Mukong & Ernest Ngeh Tingum, 2018. "The Demand for Cigarettes: New Evidence from South Africa," SALDRU Working Papers 227, Southern Africa Labour and Development Research Unit, University of Cape Town.
    • Handle: RePEc:ldr:wpaper:227
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    File URL: https://www.opensaldru.uct.ac.za/handle/11090/911
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    Cited by:

    1. Samuel Asare & Michal Stoklosa & Jeffrey Drope & Aidan Larsen, 2019. "Effects of Prices on Youth Cigarette Smoking and Tobacco Use Initiation in Ghana and Nigeria," IJERPH, MDPI, vol. 16(17), pages 1-14, August.
    2. Juan-Pierré BRUWER & Mariaan LOMBARD & Yolandé SMIT & Ankit KATRODIA, 2019. "The Influence of Excise Taxation Levied on Product Sales on the Financial Sustainability of South African Tobacco-and-Alcohol-Selling Small, Medium and Micro Enterprise," Expert Journal of Business and Management, Sprint Investify, vol. 7(1), pages 100-106.

    More about this item

    Keywords

    Cigarette demand; price elasticity; panel data; South Africa;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • P22 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Prices

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