Estimation of price elasticities and expenditure for the main important food commodities in egypt

Abstract EN

The objective of this research was to estimate price (direct and cross) and expenditure elasticities for major food commodities in Egypt.

The food commodities were divided into six groups depending on the homogeneity within each group of commodities and the data availability quantities consumed and the corresponding retail prices for each group.

Some commodities were aggregated in groups such as beans, vegetables, fruits (1), fruits (2), and oils.

The Linear Almost Ideal Demand System (LAIDS) model was applied to estimating a system of demand equations for each group of food commodities.

To avoid the invalid interference and spurious regression problems that may be created by non-stationary data series, the Fully Modified Least Squares (FMLS) estimator was used.

The demand parameters satisfy the Engel aggregation, Cournot aggregation, homogeneity, and symmetry conditions.

The results indicated that expenditure elasticities of the major food commodities/groups were less than unity except for the fruits (2) 1.110, indicating necessity effects.

This can also be interpreted as following the increasing consumption of these commodities was strongly connected with increasing of all income levels.

The results also showed that the price elasticities for food commodities/groups are inelastic.

For fruits (2), its inelastic price elasticity still indicates that it tends to be very sensitive to price changes.

The relative high cross-price elasticities in all groups illustrated the reliable substitute or complementary effects of the price change of one commodity, one quantity consumed from other commodities in the same groups.

Therefore, structural implications from the estimated elasticities are essential.

The estimated cross-price and expenditure elasticities must be analyzed during the economic reform for better understanding all economic changes affecting prices as well as consumption and expenditures.