CONSUMER DEMAND
AN ECONOMETRIC

IN HONG KONG
ANALYSIS 1

E. R. LIM *

Introduction The objectives of consumer demand analysis are first, to isolate a few major variables from the many and complex factors influencing consumer behaviour, and second, to verify empirically that this relatively small number of parameters gives a reasonable explanation of a wide range of observations on consumer behaviour. The quantitative knowledge thus obtained is necessary for the study of economic development and for the formulation of economic policy. In addition they are a necessary input to the evolution of consumer theory. The data for the present study come from the household expenditure survey conducted by the Hong Kong Department of Commerce
No doubt, consumption is a complicated function of all measures of income, past, present, expected and relative. In view of the unresolved state concerning the proper measure of income to use as the explanatory variable in consumption-income analysis, it seems We shall assume that desirable to abstract from the question altogether. household decisions on consumption are in two parts: first, the decision as to how much of total income (be it actual, permanent or relative) to spend on consumption, and second, the decision as to how total consumption expenditure is to be allocated among the different categories of goods and services. Thus, we shall be solely concerned with the latter decision and shall use total expenditure as the explanatory variable. The strongest objection to this approach concerns expenditure on durable goods. While it may be appropriate to assume that expenditures on most goods and services compete with each other for a share in total expenditure, it is quite obvious that expenditure on durable goods compete with savings and, therefore, the decision concerning the expenditure on durable goods cannot be isolated entirely from the decision as to how much of income is to be consumed and how much is to be saved. It is even questionable whether expenditure on durable goods should be considered as household consumption at all. Our only answer to this