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Estimation of Vegetable Demand Elasticities in Bangladesh: Application of Almost Ideal Demand System Model

M. A. Awal
Senior Scientific Officer
Senior Scientific Officer, On-Farm Research Division (OFRD), Bangladesh Agricultural Research Institute (BARI), Mymensingh.

S. A. Sabur
Professor
Professor, Department of Agribusiness and Marketing, Bangladesh Agricultural University, Mymensingh

M. I. A. Mia
Professor
Professor, Department of Agribusiness and Marketing, Bangladesh Agricultural University, Mymensingh

Abstract/ Executive Summary:

The study estimated vegetable demand elasticities in Bangladesh by using Almost Ideal Demand System (AIDS) model with corrected Stone price index. The study was conducted in Sherpur, Mymensingh Sadar under Mymensingh district and Ramna Thana under Dhaka Municipality. The household expenditure survey data was used in the study. The study revealed that the income (expenditure) elasticity for fresh vegetable was 0.58. The compensated and uncompensated own price elasticities indicated that all food items were price inelastic. Where estimated uncompensated own price elasticity of vegetables at the national level indicated that if the price of vegetables falls by 10% the demand for vegetables would increase by 4.09%. Of this total increase in demand, 3.61% is purely due to price effect (i.e. the substitute effect) as the compensated elasticity suggests. The estimates of cross price elasticities indicated that the substitution effects of price change were not strong. Therefore, government price intervention might not lead to considerable price repercussion in the economy.

Keywords: Estimation, Vegetable demand, Elasticities

Location: Sherpur, Mymensingh Sadar under Mymensingh district and Ramna Thana under Dhaka Municipality.

Start Date:

End Date:

Program Area: Socio-economic and Policy

Commodity: Vegetables

Objectives:

To estimate vegetable demand in Bangladesh

Methodology:

The present study has been made on using the AIDS model of estimating the consumer demand for vegetables considered. The model is intrinsically non-linear in its parameters, "Linear Approximate AIDS" (LA/AIDS) using the Richard Stone's share weighted price index has been widely applied to simplify the estimation process. Besides, aggregation properties, "Linear Approximate AIDS" (LA/AIDS) model has been widely estimated (Deaton and Muelbauer1980 and Moschini and Vissa, 1992). Stones demand equations were derived explicitly from consumer theory. His model had been developed by some alternative demand models. Most important demand equations, apart from the original linear expenditure system (LES), are the Rotterdam model (Theil, et. at. 1965, Theil, 1976 and Barten, 1969) and the translog model (Christensen, et al., 1975 and Jorgenson and Lau, 1975).Deaton and Muelbauer (1980a) developed a model, called the AIDS model. Their model is of comparable generality to the Rotterdam Translog models and has considerable advantages over the both. Buse's(1994) reveals 23 empirical application between 1980 and 1991 that used LA/AIDS specification instead of nonlinear AIDS in applied agricultural economics studies. Recent application such as Moschini (1992) and Eales and unnevelh (1993) have been introduced some variations of "Linear Approximate AIDS" (LA/AIDS) specification. Linear Approximate AIDS (LA/AIDS) is attractive for its relative case of estimation, and the case with which the classical restriction were imposed and /or tested. For the estimating the vegetable demand elasticities the AIDS model were used.

Source of Information: Bangladesh J. Agric. Econs. XXXI, 1(2008) 35-60

Article Link (Online Journal):

Funding Source:

Total Budget (Tk.) :

Achievement/Findings:

The study revealed that the income (expenditure) elasticity for fresh vegetable was 0.58. The compensated and uncompensated own price elasticities indicated that all food items were price inelastic. Where estimated uncompensated own price elasticity of vegetables at the national level indicated that if the price of vegetables falls by 10% the demand for vegetables would increase by 4.09%. Of this total increase in demand, 3.61% is purely due to price effect (i.e. the substitute effect) as the compensated elasticity suggests. The estimates of cross price elasticities indicated that the substitution effects of price change were not strong. Therefore, government price intervention might not lead to considerable price repercussion in the economy.

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