INCOME ELASTICITY OF RICE DEMAND IN JAPAN AND ITS IMPLICATIONS: CROSS-SECTIONAL DATA ANALYSIS

Researchers believe that rice in developed countries such as Japan became an inferior good a few decades ago. This study employs the flexible complete demand system for the recent cross-sectional data in Japan. Our results clearly show that rice in Japan is a normal good contrary to the preceding studies. The objective of this research is to analyze the food consumption patterns and to conduct econometric analysis of food demand structure. We use the monthly basis cross-sectional household data, Annual Report on the Family Income and Expenditure Survey (FIES) in 1997. Food items are non-glutinous rice, bread, noodle, fresh fish, and shellfish, fresh meat, milk, eggs, fresh vegetables, fresh fruits, fats and oil, and food away from home. We apply various single equation models: Working-Leser model is estimated by OLS, Heckman's two-step estimator, and Tobit estimator. All coefficients have correct signs and are statistically significant. For the complete demand system analysis, we apply the almost ideal demand (AIDS) system. To correct a censored dependent variable problem, we additionally utilize a censored regression approach. Results from AIDS models show that the expenditure elasticity of rice is positive and close to one. Marshallian and Hicksian own-price elasticities for rice are highly elastic for all models. Fresh meats and rice are mild complements in all models; however, fresh fish and rice show the mixed results.