Purpose – The purpose of this paper is to investigate dynamic food demand in
urban China, with use of a complete dynamic demand system - DLES-LA/DAIDS,
which pushes forward the techniques of demand analysis.
Design/methodology/approach – We employ a transitionary demand process
and develop a new approach of complete demand system with a two-stage dynamic
budgeting: an additively separable dynamic linear expenditure system (DLES) in the
first stage and a linear approximate dynamic almost ideal demand system
(LA/DAIDS). Employing provincial aggregate data (1995-2010) from the China
urban household surveys (UHS), we estimated the demand elasticities for primary
food products in urban China.
Findings – Our results indicate that most primary food products are
necessities and price-inelastic for urban households in China. We also found that the
dynamic model tends to yield relatively smaller expenditure elasticities in magnitude
than the static models do due to dynamic adjusting costs, such as habit formation,
switching costs, and learning process. .
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 releases the restrictive
assumption of instant adjustment in static models and allows consumers to make a
dynamic decision in food consumption. Empirically, we introduce a new complete
dynamic demand model and carry out a case study with the use of urban household
data in China.