A Dynamic Analysis of Food Demand Patterns in Urban China

Previous researchers have encountered difficulties in rationalizing the extremely high expenditure elasticities estimated for grain demanded by urban Chinese households. The high grain expenditure elasticities, which usually translate into high income elasticities, are doubtful for making a long-term prediction of grain demand in China. Unlike most previous studies using only statistic models, this study employs a dynamic Almost Ideal Demand System (DAIDS) incorporating demographic variables to explore the impact of habit effects as well as demographic impacts on household level food demand pattern in urban China. Most dynamic elements and demographic variables are found significant. The theoretical demand properties cannot be rejected in the DAIDS model while they are frequently rejected for static models. The dynamic AIDS model clearly provides improvement in estimating food demand elasticities as compared with their static counterparts.