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Income and Price Effect on the Demand of the Food Items in Bangladesh: an Application of Engel Function and FRIsch's Methodology

Murshida Khanam
Department of Statistics, University of Dhaka, Dhaka-1000, Bangladesh

Abstract/ Executive Summary:

The present study provides some light on the income and price effect on the demand of the major food items by using micro level Household Expenditure Survey (HES: 1995/96) data of Bangladesh. The Engel Function and Frisch's methodology have been applied to estimate income elasticities and direct demand elasticities respectively under certain want independence assumptions. The concept of money flexibility is used to express demand elasticities in terms of budget shares and Engel elasticities. The study is considered different kinds of major 22 food items.

Keywords: Household expenditure survey, Demand elasticities, Food, Food items

Location: All over Bangladesh

Start Date: 00-01-1995

End Date: 00-12-1996

Program Area: Socio-economic and Policy

Non-commodity: Market analysis

Objectives:

To find the impact of price on the demand of the major food items in Bangladesh.

Methodology:

The study we consider the HES data of Bangladesh (1995/96) covering both rural and urban areas. From micro data we get all types of information related to expenditure, income or anything else for every household. The study considers households from rural (504) and urban areas (238) of six divisions in Bangladesh namely: Dhaka (226), Khulna (96), Chittagong (134), Rajshahi (176), Barisal (72) and Sylhet (38). A two-stage stratified random sampling technique was followed in drawing the sample for HES 1995-96 under the framework of Integrated Multipurpose Sample (IMPS) design developed on the basis of population and Housing Census 1991. This design consists of 372 Primary Sampling Units (PSU) throughout the country. Each PSU comprises of around 250 households. In first stage, a total of 372 PSUs were drawn from the sample frame with probability proportional to size (PPS). In the second stage, 20 Households were selected from each PSU by systematic random sampling method. Amongst the 372 PSUs selected for the 1995-96 HES, a total of 7,420 households were interviewed. We consider the following information as the variables for the purpose of our study: (1) per capita expenditure on each food item and (2) per capita total income.We consider major 22 food items, which are as follows: (!) Rice, (2) Wheat, (3) Fish, (4) Mosur, (5) Potato, (6) Green Vegetables, (7) Leafy Vegetables (Shak), (8) Chicken, (9) Meat, (10) Egg, (1 1) Green Chili, (12) Onion, (13) Garlic, (14) Salt, (16) Mustard Oil, (16) Dry Fish, (17) Ghee, (18) Milk, (19) Sugar, (20) Molasses, (21) Fruits and (22) Puffed rice. In our study, the Engel function is estimated for the major 22 food items. For the six food items (rice, fish, potato, green vegetables, onion, salt) for which zero expenditure is less than 20%, OLS procedure is applied. The other sixteen food items (Wheat, Mosur, Leafy Vegetables (shak), Chicken, Meat, Egg, Green Chili, Garlic, Mustard Oi l, Dry fish, Ghee, Milk, Sugar, Molases, Fruits, Puffed rice) for which zero expenditure is 20% or more, Tobit model is applied.

Source of Information: The Bangladesh Journal of Scientific Research, Vol. 20 Nos. 1&2 December 2007, ISSN 0253-5432

Article Link (Online Journal):

Funding Source:

Total Budget (Tk.) :

Achievement/Findings:

From Engel elasticities it has been found that the income has significant impact on the demand of these items: Rice, fish, mosur, leafy vegetables (shak), chicken, meat, egg, onion, garlic, salt, mustard oil, ghee, sugar, molasses, puffed rice are found as necessary food items. From the estimates of income elasticity, it has been found that income has no significant impact on the demand of these food items: wheat, potato, green vegetables, green chili and dry fish. From demand elasticities it has been found that all the food items except chicken are found to be inelastic. That means those food items are considered as necessary food items. It has been furthermore found that the price has substantial impact on the demand for rice, wheat, leafy vegetables (shak), green chili, salt, mustard oi l, dry fish and puffed rice. Though Frisch's methodology is very useful when price information is lacking but it should be emphasized on the need for generating reliable price data on a continuous basis so that more direct and sophisticated methodology may be applied to estimate the demand elasticities, which are very useful for demand projection s, macro models and economic planning and development in general.

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