Demand Analysis for CGE Modelling and EDM II: Further Results and Details

Kenneth W. Clements (), Haiyan Liu, Marc Jim M. Mariano (), Eliyathamby A. Selvanathan (), Saroja Selvanathan () and George Verikios ()
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Kenneth W. Clements: University of Western Australia
Haiyan Liu: University of Western Australia
Marc Jim M. Mariano: Commonwealth Scientific and Industrial Research Organisation
Eliyathamby A. Selvanathan: Griffith University
Saroja Selvanathan: Griffith University
George Verikios: Griffith University

Chapter Chapter 11 in Short-cut Demand Elasticities and Other Convenient Approaches to Consumer Demand, 2025, pp 209-264 from Springer

Abstract: Abstract As the linear expenditure system (LES) is a popular choice for the consumer demand parts of CGE models, this chapter starts with an extensive analysis of its properties and implementation with cross-sectional data from a household expenditure survey. This includes a discussion of the value of a key feature of LES, the “Frisch parameter”, the income elasticity of the marginal utility of income, and the advantages for allowing for heterogeneous consumers within an LES framework. Then follows details of the econometric application of LES, and the constant elasticity of substitution model for input demands and for substitution between foreign and domestically produced varieties of the same basic good. The resulting estimates are embedded in and CGE model of the Australian economy and reveal the important role played by the values of the demand parameters—for consumers, producers, and the foreign-domestic split.

Date: 2025
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DOI: 10.1007/978-981-96-3588-7_11

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