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Is the Demand for Alcoholic Beverages in Developing Countries Sensitive to Price? Evidence from China

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  • Guoqiang Tian

    (College of Economics and Management, China Agricultural University, No. 17, Qinghuadong Road, Haidian District, Beijing, 100083, China)

  • Feng Liu

    (School of Economics, Shanghai University of Finance and Economics, 777 Guoding Road, Shanghai 200433, China)

Abstract

Economic literature in developed countries suggests that demand for alcoholic beverages is sensitive to price, with an estimated price elasticity ranging from −0.38 for beer and −0.7 for liquor. However, few studies have been conducted in developing countries. We employ a large individual-level dataset in China to estimate the effects of price on alcohol demand. Using the data from China Health and Nutrition Survey for the years 1993, 1997, 2000, 2004 and 2006, we estimate two-part models of alcohol demand. Results show the price elasticity is virtually zero for beer and only −0.12 for liquor, which is far smaller than those derived from developed countries. Separate regressions by gender reveals the results are mainly driven by men. The central implication of this study is, while alcohol tax increases can raise government revenue, it alone is not an effective policy to reduce alcohol related problems in China.

Suggested Citation

  • Guoqiang Tian & Feng Liu, 2011. "Is the Demand for Alcoholic Beverages in Developing Countries Sensitive to Price? Evidence from China," IJERPH, MDPI, vol. 8(6), pages 1-8, June.
    • Handle: RePEc:gam:jijerp:v:8:y:2011:i:6:p:2124-2131:d:12707
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    References listed on IDEAS

    as
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    3. Xiaohua Yu & David Abler, 2010. "Interactions between cigarette and alcohol consumption in rural China," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 11(2), pages 151-160, April.
    4. Jha, Prabhat & Chaloupka, Frank (ed.), 2000. "Tobacco Control in Developing Countries," OUP Catalogue, Oxford University Press, number 9780192632463.
    5. Suwen Pan & Cheng Fang & Jaime Malaga, 2006. "Alcoholic beverage consumption in China: a censored demand system approach," Applied Economics Letters, Taylor & Francis Journals, vol. 13(15), pages 975-979.
    6. Cragg, John G, 1971. "Some Statistical Models for Limited Dependent Variables with Application to the Demand for Durable Goods," Econometrica, Econometric Society, vol. 39(5), pages 829-844, September.
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    Cited by:

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    2. Shiqing Wei & Ping Yin & Ian M. Newman & Ling Qian & Duane F. Shell & Lok-wa Yuen, 2017. "Comparison of Patterns of Use of Unrecorded and Recorded Spirits: Survey of Adult Drinkers in Rural Central China," IJERPH, MDPI, vol. 14(10), pages 1-10, September.

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