Ideal Demand System Research Articles

Balancing the cart: Milk, plant‐based alternatives and nutrient availability in New Zealand households

AbstractMilk is a near‐universal source of essential nutrients and contributes significantly to global nutrient availability. Global demand for milk continues to rise, driven by population growth, rising household incomes and favourable consumption patterns. Plant‐based alternatives (PBAs) to milk seek to cater to the preferences of a share of consumers regarding sustainability, lifestyle or health‐related matters (e.g. allergies and lactose intolerance). Though popular, PBAs do not stand as suitable nutritional substitutes for milk. These considerations emphasise the complex relationships between nutritional content and consumer preferences. This paper estimates a demand system for milk and PBAs in the New Zealand (NZ) market. We explore patterns of complementarity or substitutability between standard milk, reduced‐fat milk and organic milk, and an aggregate group of PBAs. We use these results to calculate nutrient elasticities and assess changes in nutrient availability in response to prices and expenditure variations. We estimate a Quadratic Almost Ideal Demand System using purchase records for 2460 NZ households in 2021. We find that demand for standard milk does not show any substitutional relationship with PBAs. On the contrary, increases in the PBAs price lead households to switch towards standard milk, thereby increasing the availability of essential nutrients. That is, in the case of price increases, milk effectively offsets the reduction in essential nutrients as households switch away from PBAs, but PBAs cannot offset any reduction in essential nutrients as households do not find them to be adequate substitutes for milk.

Analyzing tourist expenditures incurred on long-, medium-, and short-haul trips to Taiwan

This study examined the consumption demands of short-, medium-, and long-haul tourists in Taiwan, considering the effects of tourism attractiveness, generational cohorts, and nationalities on tourism consumption demand. We employed an Almost Ideal Demand System model to estimate the expenditures and price elasticities based on tourism expenditure data of 3018 visitors to Taiwan. The results indicated that varying degrees of price elasticity were observed among short-, medium-, and long-haul tourists. Long-haul tourists exhibited the highest elasticity in terms of shopping prices and expenditure. The factors influencing tourists' attraction to Taiwan were identified as the geographical convenience of their travel and their nationalities, which, in turn, affected their consumption demands. Thus, based on tourists' relevant characteristics to implement targeted marketing strategies.

Welfare implications of rising imported food costs in the Caribbean

Vulnerability to external shocks such as supply shortages, price increases, disasters and political discord has severe implications for Caribbean food and nutrition security and the scale of economic losses. There is a need to understand how food price shocks impact Caribbean consumers, who are particularly vulnerable due to their heavy reliance on imported food. This study assessed the welfare impacts of rising imported food prices on Caribbean consumers using the linear approximated almost ideal demand system (LA-AIDS) model and compensating variation. The welfare implications of rising prices were assessed using three price shocks in: 2006–2008, 2010–2011, and 2020–2021. Hicksian price elasticities revealed that most imported food categories in the Caribbean region have inelastic demand, except for imported meat and seafood which was found to be elastic. Imported cereals and staples and fats and oils were the least responsive to price changes, while imported meat and seafood was highly responsive. The results of the compensating variation revealed that there were significant welfare losses in 2006–2008 and 2010–2011, when food prices drastically increased, as well as during the first year of the COVID-19 pandemic (2020–2021). Between 2006-2008 and 2010–2011, welfare losses were approximately US$1.54 billion and US$692.52 million, respectively, while food price inflation during the first year of the COVID-19 pandemic resulted in losses estimated at US$1.09 billion. This research highlights the need for regional policies to minimize welfare losses from rising food prices, including social safety nets for vulnerable households and investments in domestic agriculture and supply chain resilience.

Demand for milk and milk products in the rural household of Bangladesh: A panel data analysis

Milk is considered an essential source of protein for people of all ages. However, Bangladeshi people, particularly those living in rural areas, tend to consume less milk and milk products than necessary. Therefore, this study aims to investigate the demand for milk and milk products among rural consumers and the factors affecting their consumption habits. The study utilizes balanced panel data from three waves of the Bangladesh Integrated Household Survey: 2011–12, 2015, and 2018–19, collected by the International Food Policy Research Institute. Both the Almost Ideal Demand System (AIDS) and Fixed Effects Model were employed. The expenditure elasticity for liquid milk, powdered milk, and condensed milk was found to be 1.013, 1.856, and 1.060, respectively, indicating that these products are considered luxury goods in rural Bangladesh. Additionally, powdered milk is more price-sensitive than liquid or condensed milk in these areas. Milk and milk products exhibit a substitutable relationship based on the Slutsky and Cournot cross-price elasticities matrix. Consumption of liquid milk is significantly influenced, either positively or negatively, by several factors, including age, education, family size, ownership of dairy animals, income, expense of food, and year. Furthermore, while the consumption of powdered milk is increasing over time, factors such as family size and livestock ownership negatively impact its consumption. Similarly, the consumption of condensed milk is negatively affected by education and ownership of dairy animals. Based on our study results, we recommend increasing household income through on and off-farm job creation, promoting educational campaigns on the benefits of milk, and supporting livestock ownership to reduce reliance on processed milk products.

Measurement and Validation of Market Power in China’s Log Import Trade—Empirical Analysis Based on PTM Model and AIDS Model

China is the world’s largest importer of logs, possessing the scale to exert significant influence in the international market. This paper uses a fixed-effect variable coefficient Pricing-to-Market panel model to measure China’s market power in log import trade. It also utilizes the Almost Ideal Demand System model from an elasticity perspective to explore the market behavior characteristics of various source countries in China’s log import trade, thereby validating the mechanism of market power. The results indicate that: ① China’s main trading partners can be categorized into four groups according to their market power in the log import trade. Specifically, China holds superlative market power in log imports from Indonesia, Malaysia, and Myanmar; holds strong market power in log imports from Russia, the Democratic Republic of the Congo, and Mozambique; holds weak market power in log imports from Papua New Guinea, Equatorial Guinea, France, Germany, Australia, and New Zealand; and holds no market power in Japan, Cameroon, and the United States. ② As China’s expenditure on log imports increases, there is a tendency to purchase high-quality precious wood and a greater concern for the legality of market transactions. Consequently, China is anticipated to augment its imports from source countries with no or weak market power. ③ The simple price elasticity of log imports from each source country is negative. Source countries with stronger market power tend to increase prices to achieve higher total revenue, while those with weaker market power are more inclined to lower prices to achieve the same. ④ Log products from various source countries are complementary in the Chinese market, indicating that China’s substantial demand for logs relies on the simultaneous supply from multiple countries and diverse wood types. Based on the existence or absence of market power in China’s log import trade, this paper provides targeted insights into enhancing international market power and reducing trade losses.

Posisi Pasar Karet Indonesia Di Pasar Internasional

Indonesia's position as the largest rubber producing country in the world allows them to become the main exporter of natural rubber. Indonesia exports the majority of its natural rubber production to countries like Japan, India, Brazil, the United States, South Korea, China, Turkey, and others. The competition between Indonesia and other producing countries in exporting rubbers to international markets is relatively tight. The aim of this research is to analyze the position of Indonesia’s technically specified natural rubbers (TSNR) in the international market compared to other exporting countries. The analytical method used is the Almost Ideal Demand System (AIDS) Model. The data used in this research is secondary data from Indonesia, Thailand, Malaysia, Ivory Coast, Vietnam, Belgium, and Nigeria over the last 10 years (2012 – 2022). The results show that there is a tight competition between Indonesia and Thailand, Ivory Coast, Belgium, Nigeria and the Rest of the World in competing for market share of natural rubber in the international market because the relationship between Indonesia's natural rubber and these countries are substitutional. Meanwhile, Indonesia's natural rubber relationship with Malaysia is complementary. Indonesian natural rubber is a normal good, so if there is an increase in prices it will cause a decrease in demand. If there is an increase in demand for rubber exports in the international market, then the country that will benefit the most is Vietnam. Meanwhile, Indonesia is the fourth ranked country that will benefit the most if it happens.

Effects of Socio-Economic and Demographic Factors on Meat Consumption Pattern in Iran: A Demand System Approach

Meat as one of the most important resources of protein has a special role in human nutrition. Understanding the meat consumption structure of households is essential for planning and policymaking in this regard. In this research, we studied consumption patterns of meat products including chicken, veal, lamb, and fish for households in Iran (Mashhad city) using demand system estimation. The hypothesis of this study is that chicken is a necessary goods and other types of meat are luxury goods. Given the cross-sectional nature of the data and presence of zero expenditure for some households, we used the censored demand model based on a consistent two-step approach. For this purpose, at first, four Probit models were estimated to determine the factors affecting the probability of purchasing each selected meat product. After that, the probability density function (PDF) and the cumulative distribution function (CDF) were calculated for each selected meat product, and the Almost Ideal Demand System (AIDS) considering PDF and CDF was estimated for all types of meat using a non-linear seemingly unrelated regression. Also, the effect of demographic variables on meat consumption pattern was considered in demand system. The results of expenditure elasticities confirmed the hypothesis. The highest own-price elasticity was related to veal. Based on compensated price elasticities, all types of meat were net substitutes for chicken and chicken was also a net complement for all types of meat. On the other hand, the only substitute for lamb and chicken was veal, but with compensating income effect fish also became a substitute for them. So, in the event of an increase of the price of lamb and chicken, we recommend subsidizing the consumers with low purchasing power in order to increase the diversity of consumption of protein products. This can increase the consumption of fish.

Analyzing the Impact of Government Subsidies on Household Welfare during Economic Shocks: A Case Study of Iran

The study evaluates the effectiveness of Iranian government subsidies for households by comparing the welfare impact of food price shocks with the subsidy payments they receive. This helps us assess the government's efforts to reduce poverty in Iran. The household cost data in 2020 was used to calculate compensated price elasticities using the Quadratic Almost Ideal Demand System (QAIDS). Results showed negative and less than one own-price elasticities for all food items, with a sensitivity to changes in income greater than one for demand of cereals, cooking oil, and fruits. Then, compensated variations (CV) welfare index was used to evaluate the effectiveness of government support payments in reducing household vulnerability due to food price increases. The results showed that the CV fluctuates between 8.05-80.46 $ under different scenarios. In other words, consumers are in a worse situation in terms of welfare and their expenditure increases. The vulnerability index of low-income households, after applying different food price scenarios, is in the range of 1.46-14.67%, which is reduced to 1.35-14.53% by implementing the cash-targeted subsidy policy. In other words, the effectiveness of the government's subsidy policy of $19 per person could reduce the vulnerability of these households by only 0.14%.

AN EFFECTIVE PRAGMATIC ANALYSIS OF SOYBEAN IMPORTS DEMAND IN EGYPT: IMPACT OF PRICE AND EXPENDITURE

This study empirically analyses the demand for soybean imports from Argentina, the USA, and other countries to Egypt using the Almost Ideal Demand System (AIDS model) during the period (2001-2021). The model parameters used to calculate the Marshallian elasticities for which the own-price elasticities of soybean imports are 1.175, -0.857, and 0.101 for Argentina, the USA, and other countries, respectively. The cross-price elasticity of soybeans imported from Argentina and the USA are complementary relationships; and the soybeans imported from the USA have a substitutability relationship with other countries. Expenditure elasticities are elastic for soybeans imported from the USA and inelastic for soybeans imported from Argentina. If the expenditure on soybean imports increases by 10%, the soybeans imported from the USA and Argentina will increase by 11.23% and 7.36%, respectively. So, the research suggests that, in order to avoid becoming dependent on a small number of nations, Egypt must diversify the sources of its soybean imports. Additionally, it can lower imports in the future by boosting domestic manufacturing and using a variety of supply sources for goods That alludes to the primary innovation of the research, which is that soybeans imported from the USA have a substitutability relationship with other nations and a complementing cross-price elasticity with soybeans imported from Argentina. Keywords Soybeans, Demand system, AIDS model, Marshallian elasticities, expenditure elasticities.

Consumption patterns of fresh and frozen chicken: A Ghanaian food policy perspective

AbstractDespite the global increase in poultry consumption, there are different preferences for chicken products in different countries. In Ghana, two main categories dominate the market: live/fresh whole chickens and imported frozen chicken parts. This study leverages data from 13,201 households to explore Ghanaian demand dynamics for these products using the Quadratic Almost Ideal Demand System. Findings reveal stark differences between the two. Live/fresh whole chickens, considered luxury goods, display a complex interplay with other non‐chicken meat products, cultural festivities, and various sociodemographic factors. Meanwhile, frozen chicken parts, seen as necessities, exhibit different demand shifters and peak consumption periods. Importantly, these two categories emerge as distinct products, signaling to policymakers the need for differentiated strategies. Simulated policy scenarios further emphasize that reducing prices of live/fresh chickens significantly boosts domestic chicken demand more than policies raising prices of frozen parts. However, the broader implications on alternative protein sources differ between the two policy types. We urge policymakers to adopt an integrated approach, considering these nuances, to strengthen Ghana's domestic poultry sector without unintended market disruptions. [EconLit citations: Q11, Q13, Q17, Q18, D12].

The position of Indonesia’s palm oil in the vegetable oil international market

Abstract The increase in global crude oil prices and awareness of energy sustainability are driving the development of the biofuel industry. Palm oil has high productivity and competitive prices compared to other vegetable oils, encouraging competition among major palm oil exporters and significant vegetable oils. The research examines factors influencing Indonesia’s position in the global vegetable oil competition and assesses how economic shocks impact Indonesian palm oil competitiveness. This study utilized the Almost Ideal Demand System model on secondary data in the time series period of 1990-2022. The research results showed that the increase in global income is the most influential factor in the rise in the market share of Indonesian palm oil. The increase in crude oil prices favored the position of Indonesian palm oil compared to Malaysia. Fluctuations in Malaysian palm oil prices could affect the competitiveness of Indonesian palm oil. Malaysia’s palm oil, soybean oil, and sunflower oil are more complementary than Indonesia’s. Indonesia needs to collaborate with significant vegetable oil exporters, to create a palm oil commodity exchange, and to synchronize policies from upstream to downstream to ensure the fulfillment of domestic and export palm oil needs.

The demand for sparkling wine: insights on a diversified European market

PurposeThe article aims to study the demand for sparkling wines in Europe. The main objective is to estimate the classic demand parameters aggregately for the entire European area (European Union and the United Kingdom) and separately for groups of countries characterized by wine markets with similar characteristics.Design/methodology/approachUsing 15-years market data for different wine categories from the Euromonitor Passport database, the estimation of price and income elasticities is performed through a Quadratic Almost Ideal Demand System. In line with the objectives, the model is applied first to the whole European area and then separately to the considered groups of countries (subareas). To identify homogeneous subareas, a cluster analysis was performed on basic characteristics of the wine market.FindingsWhen considering the European market as a whole, sparkling wines should be considered a luxury category with a high own-price elasticity. However, the structure of their demand is rather different in different sub-areas. The observed heterogeneity suggests that differentiated policy and marketing considerations should be made. In addition, it widens the possibilities for producers, who can choose the submarkets that respond best to their needs to export their sparkling wines. This seems particularly important in markets, like the sparkling wine ones, that are experiencing a continuous expansion over the last decades.Originality/valueDespite using a methodology well-established to study wine and alcohol demand, the study fills a considerable gap in the literature. Although the demand for sparkling wine is growing worldwide, so far only a couple of studies have engaged in the analysis of its structure. In Europe, the largest market for sparkling wine, this kind of studies is completely lacking.

Analyzing per capita food consumption patterns in net food-importing developing countries

Net food-importing developing countries, which account for 30% of countries globally, and roughly 20% of the global population, must seek to reduce their vulnerabilities in food production trade shocks. This study investigates per capita food consumption patterns in 60 net food-importing developing countries using ICP 2017 data for eight food categories. Employing the linear approximate, almost ideal demand system model, the research derives marginal shares, income and price elasticities of demand, shedding light on consumption behaviors and responsiveness to changes in income and prices. Results highlight that additional expenditure on per capita food consumption is primarily allocated to fruits, vegetables, meat, and bread and cereals, with considerable variations among countries. At the same time, minimal allocation is observed for sugar and honey, as well as fats and oils. Income elasticities indicate varying degrees of responsiveness across food categories. In contrast, own-price elasticities underscore significant sensitivity to price fluctuations, notably for beverages, milk, cheese, and eggs, meat, fats and oils, and fish and seafood. Moreover, cross-price elasticities suggest predominantly substitution relationships between pairs of food categories, on average. Additionally, a visually informative map displaying estimated marginal shares, income elasticities, and own-price elasticities for the eight food categories was created. These findings offer valuable insights for policymakers and stakeholders in understanding consumption dynamics and formulating effective strategies to address food security and welfare concerns in net food-importing developing countries.

Tree nuts demand analysis using the LA-AIDS model: A case of the Indian economy paradox

India is one of the world's largest producers of tree nuts, yet it paradoxically remains a net importer of these commodities. This study aims to analyze the demand for imported tree nuts in India, motivated by the need to understand the factors contributing to this imbalance. The primary objective is to calculate income elasticities and own- and cross-price elasticities for five categories of imported tree nuts using the linear approximate almost ideal demand system model. Data is sourced from monthly import records from the United Nations Comtrade database covering 2014 to 2022. The tree nuts considered are almonds, cashews, pistachios, walnuts, and hazelnuts. Key findings reveal all imported tree nuts are normal goods. Cashews exhibit income elasticity (1.2), indicating a significant demand increase with rising incomes, while other nuts show income inelasticity. Cashews are price-elastic (−1.3), while other nuts are price-inelastic. Compensated cross-price elasticities indicate notable substitution effects, particularly between almonds and cashews. The study recommends enhancing domestic cashew production to meet growing demand and developing targeted marketing strategies to address competitive dynamics within the tree nut market. These strategies aim to reduce India's dependency on imports and promote a balanced, sustainable domestic market.

Does expanding wild venison consumption substitute livestock meat consumption? Evidence from the demand systems analysis of meat products in Hokkaido, Japan

In many countries, growing deer populations cause environmental, economic, and traffic safety problems. This study sheds light on the potential implications of expanding the consumption of venison from hunted wild deer through deer population management efforts. It focuses on changes in environmental impacts resulting from changes in the demand for livestock meat due to increased consumption of wild venison. We analyzed the demand system between them using the Quadratic Almost Ideal Demand System (QUAIDS) model and scanner data from a grocery store chain in Hokkaido Prefecture, Japan. The results show that wild venison is a substitute good for pork and lamb. By contrast, wild venison is a complementary good for imported and domestic beef. Based on the estimated demand system model, we conducted an environmental footprint analysis to estimate the changes in environmental impacts when venison consumption increased. This shows that the greenhouse gas, water, and land footprints would increase, indicating greater environmental impacts, under a scenario of expanded venison consumption. The results demonstrate that increased venison consumption does not necessarily reduce the net environmental impacts of meat consumption, which depends on the demand system for meat products and the environmental footprint intensities of the respective products.

Effect of Input Subsidy Reduction on Greenhouse Emission Reduction Potential in Paddy Production Systems in Karnataka State of India

Increasing concerns and call for reduction in Greenhouse gas (GHG) emission have necessitated the search for broader and all-inclusive policy initiatives, extending into agricultural production, where high carbon energy inputs are used. One classical policy strategy for GHG emission reduction, has been taxation. However, given the critical role of agriculture, especially in developing economies, policies that directly or indirectly increase agricultural inputs costs and reduce their demand require stronger theoretical, conceptual and empirical support to ensure that while agri-environmental quality is promoted, welfare of farming households, food security and overall economic growth are not compromised. Using paddy production in Karnataka state in India, the study assessed effects of agricultural input taxation (reduction in rice input subsidy) on future demand for such inputs and their effect on GHG emission reduction, vis-a-viz production and welfare losses. In microeconomic modelling framework, we applied quadratic almost ideal demand system and stochastic efficiency functions in the analysis of the data. Data for the study, a micro-level farm data, was obtained from Cost of Cultivation Scheme (CSS) for irrigated and non-irrigated production systems, covering the period 2009 -2018 production seasons. Specifically, the study used three future tax regime scenarios- 10%, 20% and 30% input subsidy reduction rates, to model an optimum greenhouse emission reduction potential. The results revealed that inputs evaluated were normal with inelastic demand functions; many input coefficients implied significant complementary relationships; irrigated paddy production system had higher estimates of GHG emissions. Input taxation (reduction in subsidy) under all the three scenarios effectively, resulted in declined inputs consumption patterns, and subsequently led to significant decrease in greenhouse emissions. The highest GHG emission reduction potential was observed in irrigated farming system. Greenhouse emission reduction potential was optimal at moderate subsidy reduction policy rate of 10%. It is recommended that, given the inelastic estimates derived, moderate tax (reduction in subsidy) policy option on inputs would yield effective greenhouse mitigation with appropriate compensation through effective integrative schemes.

Price effects of residents' consumption carbon emissions: Evidence from rural and urban China

Price policy applied to specific products may mitigate consumption carbon emissions (CCE). Nevertheless, the extent to which price effects, such as carbon taxes, differ across income groups and between rural and urban areas in China remains uncertain. With unbalanced provincial panel data from 1999 to 2020, we estimated the demand elasticities of eight major groups of consumer goods and services across income groups separately in rural and urban areas of China, using the Quadratic Almost Ideal Demand System (QUAIDS) and the Exact Affine Stone Index Implicit Marshallian demand system (EASI) in this study. The estimated price elasticities were then used to predict the impact of different price policies on CCE. The results show that taxing the wealthiest individuals and subsidizing the poorest individuals in both rural and urban areas have a beneficial impact on the reduction in CCE. Moreover, expanding transfer payments can further facilitate reductions in CCE. Our findings suggest that achieving CCE equality can be realized through intra-urban and intra-rural transfers, as well as urban-rural transfers achieved by taxing urban residents and subsidizing rural residents.

Demand of Imported Rice in Mozambique (2011 - 2020)

Rice plays an important role in the food and nutrition security of the Mozambican population and has been importing rice to meet growing consumption needs. There are several studies regarding demand of imported rice worldwide. However, it is noted that despite the importance of imported rice in national consumption, the empirical and quantitative studies on the demand for imported rice in Mozambique are scarce. This study results from the need to contribute to filling the information gap by providing the quantification of the impact of income and price on the consumption of imported rice. Based on monthly rice import data from 2011 to 2020, obtained from INE, the Source Differentiated Almost Ideal Demand System (SDAIDS) model and the Seemingly Unrelated Rules (SUR) approach are applied to estimate demand systems for imported rice. The period was chosen due to availability of data. The results of this study show that the national production of rice still does not cover internal needs, so the country resorts to imports to fill the deficit. The elasticities of demand for rice imported into Mozambique show that all income elasticities of demand are statistically significant, except for “other countries” or Rest of the World. The results also show that when income increases by 1%, the demand for rice increases by 1.2% when coming from “Pakistan”, and by 1.1% when coming from “Singapore”, by 1.03% for “Vietnam”; and in for those from “Myanmar” (1.1%), which suggests that rice from these countries can be classified in the luxury goods category. The results also illustrate that when the price increases by 1%, the quantities demanded decrease, on average, by 1.06% for rice coming from “Pakistan”; by 1.06% for those from “Singapore”; 1.22% for those from “Myanmar”; 0.96% for those from “Vietnam”; by 0.89% for “India”; by 0.79% for “China”; in 0.974% for “Thailand” and in 0.56% for those coming from “other countries”. The low levels of production and productivity show that it is still a challenge to guarantee rice self-sufficiency in Mozambique, and efforts to improve supply must continue, since the country's dependence on imported rice can potentially create conditions of vulnerability and insecurity and adverse market effects have competitive advantages.

Indonesia’s Pulp Export Performance In the China Market: An Analysis Using Almost Ideal Demand System Approach

Indonesia is one of the world's leading pulp producers. Both domestic consumption and global demand are increasing annually. As Indonesia seeks to meet the escalating global demand for pulp raw materials, China is emerging as a major destination for its exports, which underscores the strategic importance of this market. This study aims to evaluate the comparative advantage of Indonesian pulp exports and to identify the price, cross-price and expenditure elasticities of pulp demand in the Chinese market. Using the Revealed Comparative Advantage (RCA) method and the Linear Approximation-Almost Ideal Demand System (LA/AIDS) model, this research analyzes annual time series data covering the period 2003-2022, focusing on the quantity and export value of chemical pulp (HS 470329). The results show that Indonesian pulp has a comparative advantage in the Chinese market, as indicated by Indonesia's RCA index greater than one. However, this comparative advantage is declining over time. At the same time, China's sustained increase in pulp consumption underscores the intensified competition among pulp-exporting countries for market share in China. Using the LA/AIDS model, the estimation results highlight a different dynamic in the Chinese pulp market: Japanese pulp emerges as a complementary product to Indonesian pulp, while Thailand and Brazilian pulp act as substitutes. These findings have valuable strategic implications for Indonesian policymakers and industry stakeholders in managing the complexities of global pulp trade dynamics

Demand for International Tourism in Sri Lanka: Almost Ideal Demand System

The paper analyses the tourism demand and its economic determinants for effective management within the tourism sector. Utilising the Almost Ideal Demand System (AIDS), the study aims to estimate tourism expenditure and price responsiveness elasticities. The model employs data from 1995 to 2019, focusing on total share, total expenditure share, and total expenditure share per item. The findings reveal that Sri Lanka emerges as a destination with typical demand characteristics, showcasing a notably higher demand for tourism. Analysis of spending elasticities, both in terms of own and cross prices, underscores the country's favourable position within the tourism market. Specifically, the results indicate that the demand for tourism in Sri Lanka is sensitive to pricing dynamics, with elasticity values suggesting a significant response of tourist demand to price fluctuations. Understanding Sri Lanka's competitive position relative to other destinations underscores the importance of tailoring management strategies to suit the unique demand characteristics of each country. Given the price sensitivity observed within Sri Lanka's tourism demand, careful attention to pricing mechanisms is imperative for sustaining and enhancing the country's tourism sector.