The Economics of Global Consumption Patterns

Henri Theil devoted a good deal of the last two decades of his professional activities to the analysis of international consumption patterns. This paper commences with a review of Theil’s path-breaking research on cross-country demand, and then investigates in some detail two important issues: (i) the extent to which differences in incomes and prices explain international consumption pattern; and (ii) new empirical evidence regarding the extent to which tastes are similar internationally. The paper also contains an evaluation of another important building block of Theil’s work in this area, that of the assumption of preference independence, whereby there are no interactions between goods in the utility function.