Price and income elasticities for alcohol in Sri Lanka

Abstract

Aims:  To study the effect of changes in income as well as prices of beer and arrack, on alcohol sales in Sri Lanka during the period 1981–2017. Design:  The analyses were conducted by means of ARIMA time series analysis for arrack and beer separately. Measures: Yearly data on the sales of beer and arrack in the entire country were used. National GDP figures were used as a proxy measure of income, and yearly price data for arrack and beer were from Colombo, the largest metropolitan area in the country. Results:  No short-term effects of changes in price or income were found on sales. However, changes in the price of beer were significant, with a lag structure, which implies a delayed effect of price changes on the sales of beer. A significant cross-price effect of changes in the price of beer on arrack sales was found as well. Conclusions:  Sales of alcohol in Sri Lanka are not affected by price changes to the same extent as in high income countries. Most likely, the explanations will be found in the different drinking cultures between Sri Lanka and these countries.