Sankhya: The Indian Journal of Statistics

1996, Volume 58, Series B, Pt. 2, pp. 254--273

NESTING FLEXIBLE DEMAND FUNCTIONAL FORMS : ECONOMETRIC EVIDENCE FOR INDIA AND UK

By

RANJAN RAY, University of Tasmania

SUMMARY.  This paper proposes a new demand system that nests the CES, 'Almost Ideal' and translog demand models. The introduction of CES parameter in PIGLOG leads to significant improvement in model performance. The evidence rejects the 'Almost Ideal' and translog in favour of composite models. The presence of rich price effects, that superiority of the comprehensive model represents, survives introduction of time trend, quadratic preferences and demographic variables. The Indian results show that quadratic expenditure effects on budget share are weakened in presence of demographic effects. Rank two demand models, with improved price and demographic specification, seem adequate for developing countries.

AMS (1992) subject classification.  62P20.

Key words and phrases. Comprehensive model, demographic demand, generalised cost scaling, nesting.

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