The Role of Income and Substitution in Commodity Demand

72 Pages Posted: 28 Jan 2020

Date Written: January 23, 2020

Abstract

This paper presents estimates of time-varying income elasticities of demand for energy and metal commodities. The analysis finds that the elasticities are close to unity, evaluated at world median per capita income levels. Furthermore, the estimates confirm that as income rises, demand growth for industrial commodities slows and eventually plateaus. Indeed, estimates for aggregate metals and energy differ by an order of magnitude throughout the income spectrum: from a low of 0.2 for advanced economies to nearly 2 for low-income countries. The analysis, which accounts for substitutability by estimating group aggregates as well as individual commodities with cross-price effects, is based on a panel autoregressive distributed lag model covering 1965-2018, for up to 63 countries.

Suggested Citation

Baffes, John and Kabundi, Alain Ntumba and Nagle, Peter Stephen Oliver, The Role of Income and Substitution in Commodity Demand (January 23, 2020). World Bank Policy Research Working Paper No. 9122, Available at SSRN: https://ssrn.com/abstract=3524706

John Baffes (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

HOME PAGE: http://econ.worldbank.org/staff/jbaffes

Alain Ntumba Kabundi

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Peter Stephen Oliver Nagle

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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