Cointegration and error correction modelling of wheat consumption in Pakistan

Abstract

PurposeThe purpose of this paper is to estimate the short and the long run wheat demand elasticities in Pakistan.Design/methodology/approachUsing cointegration and vector error correction model (VECM) techniques, the main objective of the study has been achieved.FindingsThe estimated long run and the short run elasticities suggest that income is the most significant determinant of wheat consumption in the long run while price of wheat is the major affecting factor of wheat consumption only in the short run.Practical implicationsThe estimated demand elasticites may be used for framing any future food security policy in Pakistan. The less elastic nature of wheat demand both in the short and the long run suggests that under the likely Doha Round agricultural trade liberalization, wheat price rise will harm the poor consumers.Originality/valueWheat demand elasticities are estimated within the framework of cointegration and VECM to differentiate short run and long run elasticities in Pakistan.