IMPACTS OF INCOME CHANGES AND MODEL SPECIFICATION ON FOOD DEMAND IN URBAN CHINA

Functional form specification is a crucial task in demand analysis. Four food demand systems for 12 aggregated food items in urban China are estimated and compared using province level data for the period 1992-1999. The results show the expenditure elasticities especially for grain are different based on the functional form selection. According to the measures of forecasting accuracy, we conclude the following: for ex post simulation, the simpler the models, the better the performances, whereas for ex ante forecasting, the more complicated the model, the better the predictions. We further conclude that the LES and QES outperform the LA/AIDS and AIDS. Therefore, model selection should depend on the study purpose. In addition, as urban Chinese household income increases, they will consume more aquatic products, poultry and milk than other foods. This potential trend will certainly benefit the fishery and livestock industries as well as feed grain producers in China or other countries such as Taiwan. However, high own-price elasticities of these three food groups suggest that the profitability of suppliers and traders is very sensitive to price changes.