Econometric Estimation of Engel Curve in Household Demand Analysis: A case study of household food demand in Dhaka Metropolitan City.

Abstract

This paper examines the Engel's law (that household food expenditure at constant price increases less than proportionately with increase in household income level) for the samples of middle and upper middle class households dwelling in two popular suburbs of Dhaka Metropolitan City. Data on monthly household food expenditure, monthly household average income, household size and composition based on age, and some other household characteristics of 625 households dwelling in suburb Shiddeshwari and 348 households dwelling in suburb Moghbazar were collected from a survey conducted in September 1999. With commonly used specifications of Engel curves, estimates of income effect and income elasticity of food have been obtained using Ordinary Least Squares (OLS) estimation technique. Then, the household food demand model for two suburbs was again estimated incorporating some interesting household characteristics. In all estimations, food is found to be significantly income inelastic, and economies of scale is found to be working for both samples.