The Econometrics of Demand Systems: With Applications to Food Demand in the Nordic Countries

292 Pages·1996·7.73 MB·English

by  David L. Edgerton

THE ECONOMETRICS OF DEMAND SYSTEMS
Advanced Studies in Theoretical and Applied Econometrics
Volume 34
Managing Editors:
A.J. Hughes Hallet, University of Strathclyde, Glasgow, United Kingdom
J. Marquez, The Federal Reserve System, Washington, D.C., US.A.
Editorial Board:
F.G. Adams, University of Pennsylvania, Philadelphia, US.A.
P. Balestra, University of Geneva, Switzerland
M.G. Dagenais, University of Montreal, Canada
D. Kendrick, University of Texas, Austin, US.A.
J.H.P. Paelinck, Netherlands Economic Institute, Rotterdam, The Netherlands
R.S. Pindyck, Sloane School of Management, M.I. T., US.A.
H. Theil, University of Florida, Gainesviffe, US.A.
W. Welfe, University of Lodz, Poland
The titles published in this series are listed at the end of this volume.
The Econometrics of
Demand Systems
With Applications to Food Demand
in the Nordic Countries
by
David L. Edgerton
Lund University, Sweden
Bengt Assarsson
Uppsa[a University, Sweden
Anders Hummelmose
Landbocentret, Bronders[ev, Denmark
Ilkka P. Laurila
University oj Helsinki, Finland, and
Agricu[tura[ Economics Research Institute, Helsinki, Finland
Kyrre Rickertsen
Agricu[tura[ University oj Norway, As, Norway
Per Halvor Vale
Agricu[tura[ University oj Norway, As, Norway
"
~.
KLUWER ACADEMIC PUBLISHERS
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Distributors for North America:
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Library of Congress Cataloging-in-Publication Data
The econometrics of demand systems : with applications to food demand
in the Nordic countries / by David L. Edgerton ... [et al.].
p. cm. -- (Advanced studies in theoretical and applied
econometrics ; 34)
Includes index.
ISBN-13: 978-1-4612-8545-8 e-ISBN-13: 978-1-4613-1277-2
DOl: 10.1007/978-1-4613-1277-2
1. Food industry and trade--Scandinavia--Econometric models.
2. Food supply--Scandinavia--Econometric models. 3. Demand
(Economic theory)--Econometric models. I. Edgerton, David L.
II. Series.
HD9015.S342E27 1996
339.4'86413'00948--dc20 96-23237
CIP
Copyright © 1996 by Kluwer Academic Publishers
Softcover reprint of the hardcover 1s t edition 1996
All rights reserved. No part of this publication may be reproduced, stored in
a retrieval system or transmitted in any form or by any means, mechanical,
photo-copying, recording, or otherwise, without the prior written permission of
the publisher, Kluwer Academic Publishers, 101 Philip Drive, Assinippi Park,
Norwell, Massachusetts 02061.
Printed on acid-free paper.
CONTENTS
Glossary ix
Preface xi
Part I: A Model/or Food Consumption in the Nordic Countries
1 Introduction 3
2 The Consumption of Food in The Nordic Countries 7
2.1 Introduction 7
2.2 The Data 9
2.3 Real Consumption, Relative Prices and Budget Shares 12
2.4 Physical Quantities 26
Appendices 29
3 Consumer Demand Theory 55
3.1 Introduction 55
3.2 Preferences and Utility Maximisation 55
3.3 Duality and Consumer Demand 56
3.4 Restrictions in Consumer Demand 59
3.5 Dynamics in Consumption 61
4 The Specification and Estimation of Demand Systems 63
4.1 Introduction 63
4.2 Model Formulation 63
4.3 Estimation in Demand Systems 72
4.4 The Evaluation of Demand Systems 80
5 A Common Dynamic AIDS Model for The Nordic Countries 93
5.1 Introduction 93
5.2 Statistical Evaluation 95
5.3 Testing Economic Hypotheses 103
5.4 Analysis of Elasticity Estimates 107
5.5 Conclusions 119
Appendix 121
Table of Contents
VI
Part II: Special Studies
6 Extensions to the Common Model 141
by David Edgerton
6.1 Introduction 141
6.2 The Methodology of the Chapter 142
6.3 Gradually Switching Dynamic AIDS Models 146
6.4 Other Analyses for Sweden 158
6.5 Conclusions from the Swedish Study 164
6.6 A Separability Analysis for Norway (by Kyrre Rickertsen) 167
6.7 Different Functional Forms for Denmark 173
Appendix 182
7 The Almost Ideal Demand System in Error Correction Form 195
by Bengt Assarsson
7.1 Introduction 195
7.2 Dynamic AIDS in Error Correction Form 195
7.3 Testing for Unit Roots 198
7.4 Testing Restrictions in Generalised AIDS 199
7.5 Empirical Results 200
7.6 Conclusions 204
8 Projections of Future Consumption in Finland 205
by Ilkka Laurila
8.1 Introduction 205
8.2 Selection of Preferred Specifications 207
8.3 Forecasting Accuracy 209
8.4 Projections for the Exogenous Variables 212
8.5 Projections for the Year 2000 215
8.6 Conclusions 220
9 Household and Aggregate Time-Series Data 223
by Kyrre Rickertsen and Per Halvor Vale
9.1 Introduction 223
9.2 Restrictions in Demand Systems 224
9.3 Elasticities and the Time Dimension 225
9.4 Aggregation in the Almost Ideal Model 228
9.5 Empirical Results 23 I
9.6 Conclusions 237
Table of Contents Vll
10 The Importance of Socioeconomic Variables 239
by Per Halvor Vale
10.1 Introduction 239
10.2 The Model 239
10.3 Empirical Results 240
10.4 Conclusions 244
11 Testing Adding Up in the Common Model 245
by David Edgerton
11.1 Introduction 245
11.2 Adding Up in Nonlinear Demand Systems 246
11.3 Adding Up in Estimated Demand Systems 248
11.4 Adding Up and Nonlinear AIDS Estimation 251
11.5 Testing for Adding Up Using Swedish Data 252
Part III: Conclusions
12 Conclusions 259
12.1 Methodology 259
12.2 Results: A General Impression 262
Appendix 1: Publications and Working Papers 265
Appendix 2: Data Appendix 271
Bibliography 273
Author Index 281
Subject Index 283
GLOSSARY
Definitions of Basic Variables
i,j,k = 1, ... ,n Index for commodities
Pi Price of the ilk good
qi Quantity consumed of the ilh good
Xi =qiPi Expenditure on the ilh good
X=LiXi Total expenditure
Wi =xjx Budget share of the ilh good
y Disposable income
Stochastic error term in the equation for the ilh good
Vectors and matrices are printed in bold face, for example
p = (p\, ... ,Pn)' Price vector
q = (q\, ... ,qn)' Quantity vector
Definitions of Basic Functions
u = v(q) (Direct) utility function
u = lp(x,p) Indirect utility function
x= c(u,p) Expenditure function
qi=gi(X,P) Marshallian demand function
qi=hi(u,p) Hicksian demand function
E. = Jlngi
Total expenditure elasticity
Jinx
I
dlngi
e·· =--- Uncompensated (Marshall ian) price elasticity
!I dlnpj
_ dlnhi
e··=--- Compensated (Hicksian) price elasticity
dlnpj
l]
x Glossary
Definitions in Two-Stage Budgeting
In two-stage budgeting the commodities are divided up into a number of groups.
The following notation is used.
Group expenditure for the rth group of goods
Within group expenditure elasticity for the ith good within the rlh
group of goods
Group expenditure elasticity for the rth group of goods
Total expenditure elasticity for the ilh good
with similar notation for the budget shares, w. The price elasticities are defined as
Within group uncompensated price elasticity between the jth and
ith goods within the rlh group of goods
Group uncompensated price elasticity between the slh and rfh
e(r)(s)
groups of goods
Total uncompensated price elastici ty between the jth and ith goods
e .
with similar notation for the compensated price elasticities
Definitions in Aggregate Time-Series
t=l, ... ,T Index for time periods
The index t is only used when we need to distinguish between different time peri
ods and/or different aggregation levels. Variables are now defined qit, Pit, wit, etc.
Definitions in Household Studies
h=l, ... ,H Index for households
The index h is only used when we need to distinguish between different households
and/or different aggregation levels. Variables are now defined qih, Pih, Wih, etc.
In Chapter 10, the results for time-series and household studies are compared. In
this chapter time-series and household variables are denoted in upper case, while
individual variables are denoted in lower case.
Notational System
The notational system used in this book is organised chapterwise. All equations,
tables, etc., are numbered starting from one in each chapter. References within a
chapter simply use the relevant number, whilst references between chapters use
both chapter and number.
PREFACE
This book contains some of the results from the research project "Demand for Food
in the Nordic Countries", which was initiated in 1988 by Professor Olof Bolin of
the Agricultural University in Ultuna, Sweden and by Professor Karl Iohan
Weckman, of the University of Helsinki, Finland. A pilot study was carried out by
Bengt Assarsson, which in 1989 led to a successful application for a research grant
from the NKJ (The Nordic Contact Body for Agricultural Research) through the
national research councils for agricultural research in Denmark, Finland, Norway
and Sweden. We are very grateful to Olof Bolin and Karl Iohan Weckman, without
whom this project would not have come about, and to the national research councils
in the Nordic countries for the generous financial support we have received for this
project.
We have received comments and suggestions from many colleagues, and this
has improved our work substantially. At the start of the project a reference group
was formed, consisting of Professor Olof Bolin, Professor Anders Klevmarken,
Agr. lie. Gert Aage Nielsen, Professor Karl Iohan Weckman and Cando oecon. Per
Halvor Vale. Gert Aage Nielsen left the group early in the project for a position in
Landbanken, and was replaced by Professor Lars Otto, while Per Halvor Vale soon
joined the research staff. The reference group has given us useful suggestions and
encouraged us in our work. Weare very grateful to them.
A large number of research reports have been published in a separate working
paper series for this project, a list of which can be found in Appendix 1. These
reports have been presented at our local departments and at various national and
international conferences, for example the Econometric Society's World Congresses
in Barcelona and Tokyo, the Econometric Society's European Meeting in Uppsala,
The American Agricultural Economics Association's Annual Meetings in Balti
more and Indianapolis, The International Conference of Agricultural Economies in
Harare, The European Congress of Agricultural Economists in Stresa, The Roma
nian-Swedish Economic Symposium in Bucharest, The Annual Meeting of the
Nordic Society of Agricultural Researchers in Uppsala, and Ekonometridagarna
(The Econometric Days) in Gothenburg, Lund, Stockholm, Umea and Uppsala. We
are very grateful to the participants in these events for all the comments and sug
gestions that we have received.
The authors share the responsibility for this book, and work on all the chapters
has been discussed thoroughly among the research staff at workshops that have
been arranged on a regular basis. Nevertheless, different members of the research
staff bear the main responsibility for the various components of the book, which is