Estimation of the parameters of a linear expenditure system (LES) demand function for a small African economy

Nganou, Jean-Pascal (2005): Estimation of the parameters of a linear expenditure system (LES) demand function for a small African economy.

Abstract

The validity of the key behavioral parameters used in the calibration process of computable general equilibrium (CGE) models remains a debated issue in the CGE literature. CGE modelers prefer to borrow from the handful of estimates available in the literature rather than estimating these parameters empirically. The dearth of data is often mentioned as the major reason for compromises to the empirical basis for the parameters used in CGE models. While the empirical literature on demand elasticities based on household expenditure surveys has been relatively available for both developed and developing countries, it remains lacking for African countries. This paper uses a seemingly unrelated regressions method to estimate own-price and income elasticities, as well as Frisch parameters for households whose consumption behavior is described by a Linear Expenditure System (LES) demand function. All the parameters estimated are intended for use in a Lesotho CGE model. The estimation results are generally consistent with the theory predictions.

• Item Type: MPRA Paper
• Language: English
• Keywords: CGE; Demand System (LES); Seemingly Unrelated Regressions (SUR); Africa; Lesotho
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C20 - General

References

Creedy, John (1996) Measuring the Welfare Effects of Price Changes: A Convenient Parameter Approach, Research Papers of The University of Melbourne (536), 1–31.

Frisch, Ragnar (1959) A Complete Scheme for Computing All Direct and Cross Demand Elasticities In A Model with Many Sectors, Econometrica 27, pp.

Judge, George G., R. Carter Hill, William E. Griffiths, Helmut Lutkepohl, and Tsoung-Chao Lee (1980) The Theory and Practice of Econometrics (New York, USA).

Judge, George G., R. Carter Hill, William E. Griffiths, Helmut Lutkepohl, and Tsoung-Chao Lee (1988) Introduction to the Theory and Practice of Econometrics (New York, USA).

Lluch, C., A. A. Powell, and R. A. Williams (1977), Patterns in Household Demand and Saving (Oxford: Oxford University Press for the World Bank).

Nganou, Jean-Pascal Nguessa (2005) A Multisectoral Analysis of Growth Prospects for Lesotho: SAM-Multiplier Decomposition and Computable General Equilibrium Perspectives Unpublished Ph.D. Thesis, American University, Washington, DC (US).

Tulpule, A. and A. A. Powell (1978) Estimates of Household Demand Elasticities for the ORANI Model, IMPACT Project Working Paper (OP-22).

Zellner, Arnold (1962) An Efficient Method for Estimating Seemingly Unrelated Regressions and Tests for Aggregate Bias, Journal of the American Statistical Association 57, pp. 348–368.