Consumption patterns in Sri Lanka: a decomposition analysis

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Accepted Manuscript (AM)
Author(s)
Rathnayaka, Shashika D
Selvanathan, EA Selva
Selvanathan, Saroja
Year published
2019
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Knowing consumer reaction to changes in prices and income is important in formulating microeconomic policies, such as public utility prices and commodity taxation. This paper analyses the consumption patterns of consumer goods grouped into eight broad commodities in Sri Lanka during the period 1975–2016, using a system-wide framework. The analysis indicates that Sri Lankan consumers allocate more than half of their income to food and nearly four fifths of their income to food, housing, and transport combined. The estimated income and own-price elasticities reveal that food, housing, medical care, and transport are necessities; ...
View more >Knowing consumer reaction to changes in prices and income is important in formulating microeconomic policies, such as public utility prices and commodity taxation. This paper analyses the consumption patterns of consumer goods grouped into eight broad commodities in Sri Lanka during the period 1975–2016, using a system-wide framework. The analysis indicates that Sri Lankan consumers allocate more than half of their income to food and nearly four fifths of their income to food, housing, and transport combined. The estimated income and own-price elasticities reveal that food, housing, medical care, and transport are necessities; clothing, durables and recreation are luxuries; and demand for all commodities is price inelastic except for recreation. To investigate the consumption growth pattern, we decomposed the growth in consumption and change in budget shares of the eight commodities into income, relative price, and change in taste. We also simulated per capita consumption expenditure of the eight commodities under various policy scenarios and found that income growth has played a significant role in Sri Lankan consumption patterns.
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View more >Knowing consumer reaction to changes in prices and income is important in formulating microeconomic policies, such as public utility prices and commodity taxation. This paper analyses the consumption patterns of consumer goods grouped into eight broad commodities in Sri Lanka during the period 1975–2016, using a system-wide framework. The analysis indicates that Sri Lankan consumers allocate more than half of their income to food and nearly four fifths of their income to food, housing, and transport combined. The estimated income and own-price elasticities reveal that food, housing, medical care, and transport are necessities; clothing, durables and recreation are luxuries; and demand for all commodities is price inelastic except for recreation. To investigate the consumption growth pattern, we decomposed the growth in consumption and change in budget shares of the eight commodities into income, relative price, and change in taste. We also simulated per capita consumption expenditure of the eight commodities under various policy scenarios and found that income growth has played a significant role in Sri Lankan consumption patterns.
View less >
Journal Title
APPLIED ECONOMICS
Volume
51
Issue
37
Copyright Statement
© 2019 Taylor & Francis (Routledge). This is an Accepted Manuscript of an article published by Taylor & Francis in Applied Economics on 21 Mar 2019, available online: https://doi.org/10.1080/00036846.2019.1588950
Subject
Applied economics
Econometrics