Dynamic modelling of consumption patterns using LA-AIDS: a comparative study of developed versus developing countries

Abstract The traditional applied demand system estimation assumes that when consumer income and commodity prices change, the consumers instantaneously fully adjust to a new consumption equilibrium level use static such as Static Linear Almost Ideal Demand System (Static LA-AIDS) for estimation. However, in real-life situations, an assumption does not hold take time settle level. Hence, dynamic estimations generate more nuanced insights into short-run dynamics of demand. This paper estimates two forms versions AIDS, Dynamic LA-AIDS error-corrected LA-AIDS, compares results with LA-AIDS. also models patterns developed developing countries provides comparative analysis implied elasticities using recent data. show support theory hypotheses—demand homogeneity Slutsky symmetry—more than model. estimated mean own-price reveal long-run is price inelastic across all countries. Long-run demonstrated notable variation various groups country groups. For example, restaurant meal luxury In long-run, it necessity Food housing are necessities; durables, transport recreation luxuries short-run.