The Analysis of Limitation of Engel's Coefficient-A case study of rural areas in Hebei Province

On the basis of introducing relevant theories of Engel’s coefficient, this paper analyzes the limitation of these theories in practical application currently in China, for example, continuing to use original theory, not in line with reality of China; comparison invalidity in length and breadth, is not conducive to relevant analysis; culling out the special factors easily causes distortion of conclusion. Taking rural areas in Hebei Province as an example, this paper analyzes the limitation of Engel’s coefficient in analyzing the gap of rural economy: in terms of region horizontally, Engel’s coefficient neglects the difference of consumption structure among regions, and difference of economic stages among regions; in terms of time vertically, Engel’s coefficient neglects the periodic change of consumption structure and the ratio change of different families in different periods. According to the reality of China’s rural areas, the correction model of Engel’s coefficient is established as follows. Firstly, Engel’s coefficient=percentage of expenditure variation (food+ education+ medical service)/percentage of total expenditure variation; Engel’s coefficient=percentage of expenditure variation (food+ education+ medical service)/percentage of income variation. Secondly, Engel’s coefficient=percentage of expenditure variation of food/percentage of variation of (total expenditure-educational expenditure-medical expenditure. Thirdly, Engel’s coefficient=percentage of expenditure variation of food/percentage of total expenditure variation.