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Dynamic food demand in urban China

De Zhou (Department of Agricultural Economics and Rural Development, Georg-August-Universität Göttingen, Göttingen, Germany.)
Xiaohua Yu (Courant Research Centre ’Poverty, Equity and Growth’, Georg-August-Universität Göttingen, Göttingen, Germany.)
Thomas Herzfeld (Department of Agricultural Policy, Leibniz Institute of Agricultural Development in Central and Eastern Europe (IAMO), Halle, Germany.)

China Agricultural Economic Review

ISSN: 1756-137X

Article publication date: 2 February 2015

Abstract

Purpose

The purpose of this paper is to investigate dynamic food demand in urban China, with use of a complete dynamic demand system – dynamic linear expenditure system-linear approximate dynamic almost ideal demand system (DLES-LA/DAIDS), which pushes forward the techniques of demand analysis.

Design/methodology/approach

The authors employ a transitionary demand process and develop a new approach of complete demand system with a two-stage dynamic budgeting: a strongly separable DLES in the first stage and a LA/DAIDS in the second stage. Employing provincial aggregate data (1995-2010) from the China urban household surveys, The authors estimated the demand elasticities for primary food products in urban China.

Findings

The results indicate that most primary food products are necessities and price inelastic for urban households in China. The authors also found that the dynamic model tends to yield relatively smaller expenditure elasticities in magnitude than the static models do due to the friction effect of dynamic adjusting costs, such as habit formation, switching costs, and learning process. However, the dynamic effects on own price elasticities are inconclusive due to the add-up restriction.

Practical implications

The research contributes to the demand analysis methodologically, and can be used for better projections in policy simulation models.

Originality/value

This paper methodologically relaxes the restrictive assumption of instant adjustment in static models and allows consumers to make a dynamic decision in food consumption. Empirically, the authors introduce a new complete dynamic demand model and carry out a case study with the use of urban household data in China.

Keywords

Acknowledgements

JEL Classification – D21

The funding support from German Research Foundation (RTG 1666 “Global Food”) and the National Natural Science Foundation of China (Project ID:71273006 and 71473123) are acknowledged.

Citation

Zhou, D., Yu, X. and Herzfeld, T. (2015), "Dynamic food demand in urban China", China Agricultural Economic Review, Vol. 7 No. 1, pp. 27-44. https://doi.org/10.1108/CAER-02-2014-0016

Publisher

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Emerald Group Publishing Limited

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