Household Consumption Patterns in Pakistan: An Urban-Rural Comparison Using Micro Data

Abstract

This paper examines the household consumption patterns separately for the urban and the rural sectors in Pakistan by estimating the marginal expenditure shares and expenditure elasticities, for twelve broad commodity groups, using household level data for the year 1984-85. At the sectoral level, the marginal expenditure shares are estimated both with and without the 'community effect'. Furthermore, by dividing households within each sector into different income groups, income-specific marginal expenditure shares and elasticities are also obtained. This level of disaggregation reveals much richer consumption patterns as compared to the ones based on grouped data. The estimated marginal expenditure shares indicate that in examining the household consumption pattems one can safely assume that all the households in the sample face the same price structure. While the fmdings of the paper support the validity of Engel's Law, the estimates presented indicate that expenditure elasticities for different commodity groups vary with income and, in general, exhibit a cyclical pattern, which is explained in terms of quantitative as well as qualitative changes in the households' consumption basket. For a majority of the commodity groups, both structural and behavioural differences in the consumption patterns are found to exist between the urban and the rural households. Furthermore, our results also confirm the existence of economies of scale in the consumption of majority of the commodity groups. The degrees of these economies of scale are not only different across commodities but also between sectors and across the income groups within each sector.