Validating LA/AIDS model in the food market of Pakistan

The study aims to conduct a consumer demand analysis of the food market of Pakistan by estimating its own price and cross-price elasticities. This study also examines expenditure and income elasticities to show the influence of relative change in price, total expenditure, and income on the relative change in demanded quantities of the selected food products. The study takes meat, vegetables, fruits, and pulses as different food baskets and estimates income elasticities, including uncompensated (Marshallian) and compensated (Hicksian) own price and cross-price elasticities. The findings are concluded based on Marshallian elasticity as it provides more accurate images of substitutes and complements compared with Hicksian elasticity. The study applies the Linear Approximate Almost Ideal Demand System model to estimate the results by acquiring data from a household integrated economic survey of Pakistan from 2018 to 2019. The findings of expenditure elasticity (uncompensated own price elasticity) reveal that vegetables and pulses are normal (inelastic) goods, whereas meat and fruits are luxury (elastic) goods. The results of uncompensated cross-price elasticities reveal that vegetables and meat, and vegetables and fruits are substitutable commodities. In addition, pulses and vegetables, and pulses and meat are complementary goods. The study suggests fruitful implications for food policymakers.