ESTIMATING INCOME AND PRICE ELASTICITIES FOR FOOD COMMODITIES USING TIME SERIES DATA FOR PAKISTAN

Abstract

This study is conducted to analyze the consumer’s behavior in Pakistan regarding their income and prices of ten most commonly used food items incorporating annual disappearance data of Pakistan for the period 1971-72 to 2010-2011. Characteristics of time series data (stationarity and cointegration) have been checked before specifying the most appropriate form of the model. Three models namely LA/AIDS, static LA/AIDS and finally ECM LA/AIDS are estimated by employing the seemingly unrelated regression (SUR).  The parameters estimates of static LA/AIDS and ECM- LA/AIDS are further used to find short- and long-run demand elasticities. The expenditure elasticities from LA/AIDS and Static LA/AIDS show that all commodities are necessities except rice and meat. However, while using ECM- LA/AIDS the results show that all commodities are necessities except milk and fruits. For almost all items the own price elasticities have negative signs and reasonable in magnitude except for rice and fruits while using LA/AIDS and Static LA/AIDS. However, own price elasticities for all commodities have negative sign with the exception of fruits while using ECM LA/AIDS.