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Back to Engel? Some Evidence for the Hierarchy of Needs

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Long Term Economic Development

Part of the book series: Economic Complexity and Evolution ((ECAE))

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Abstract

Using UK household expenditure data spanning over four decades (1960–2000), this paper employs Engel’s needs-based approach to analyzing household expenditure patterns and finds evidence for the existence of a stable hierarchy of expenditure patterns at low levels of household income. Second, we investigate how rising household income influences the manner in which total expenditure is distributed across Engel’s expenditure categories. Our results suggest that i) total household expenditure is distributed across Engel’s expenditure categories in an increasingly even manner as household income increases and ii) over time, there has been an acceleration in the rate at which household expenditure patterns become diversified as household income rises. Finally, we consider how the shape of Engel Curves may help shed light on the relationship between goods and the underlying needs they serve.

Reprinted from Journal of Evolutionary Economics 22(4), 649-676 , Springer (2012)

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Notes

  1. 1.

    In the literature, Engel was thus perceived as a pioneer of an evolutionary approach to economics: “By his study on consumption alone Engel came to appreciate the modifiable nature of human beings. This is a central thought in modern economics which many students have only recently been coerced into accepting by the triumph of evolutionary philosophy” (A. G. Warner, Publications of the American Statistical Association, 1896).

  2. 2.

    “Niemand weiss, warum es so ist, aber es ist so, dass alles Lebende mit einer Reihe von bedürfnissen geboren wird, deren Nichtbefriedigung den Tod herbeiführt. Der Mensch macht hiervon am wenigsten eine Ausnahme. Auch in ihm wirkt der Drang der Befriedigung mit der Gewalt einer Narturkraft, dies selbst über starke Fesseln den Sieg davon trägt oder aber darin zu Grunde geht.”

  3. 3.

    “Allein die Bedürfnisse sind nicht alle von gleichem Range. Obenan stehen die von deren Befriedigung die physiche Erhaltung abhängt: Nahrung Kleidung, Wohnung, Heizung und Beleuchtung derselben und Gesundheitspflege. In Zwieter Linie folgen: Geistespflege, Seelsorge, Rechtsschutz und öffentliche Sicherhiet, Vor- und Fürsorge, Erholung und Erquickung.”

  4. 4.

    For a discussion of the extent to which saturation can be found across the wide variety of goods and services present in modern economies see Moneta and Chai (2010).

  5. 5.

    For one attempt, see Jackson and Marks (1999).

  6. 6.

    A number of case studies have begun to study the evolving link between particular goods & services and the underlying needs they serve. The general aim is to uncover general regularities in how product innovations may be linked to satiation of the needs original served by goods and services, such as food (Ruprecht 2005; Manig and Moneta 2009), shoes (Frenzel Baudisch 2006), tourism services (Chai 2011) and washing machines (Witt and Woersdorfer 2010).

  7. 7.

    We avoided aggregating across households of different sizes as this would involve using equivalence scales that feature a priori assumptions about how the proportion of family spending dedicated to needs changes with family size. To check the robustness of our results, we aggregated spending data across different household sizes. We found similar results to those reported below, These results are available upon request. In the reclassification exercise, some unavoidable inaccuracies emerged, as there was insufficient information to properly allocate the expenditure category within Engel’s schema.

  8. 8.

    This finding should be interpreted as a “generic invariance” in the statistical properties of consumption behavior in the spirit advocated by Aversi et al. (1999:384).

  9. 9.

    This result is also different from Prais’ (1953) statement that, as income rises, a greater number of goods will enter the household consumption basket (see Jackson 1984). The fact that a greater number of goods enter the consumption basket does not imply that there will be a more even distribution across expenditure categories. It is a possible that the number of items found in the household consumption basket increases, without affecting the distribution of total expenditure across expenditure categories.

  10. 10.

    Regarding how sensitive these results are to demographic factors, we found that these results were robust when comparing ECs for households of different sizes (two and three person households). For reasons of space we do not report these results here. They are available on request.

  11. 11.

    Similar assumption are made in Jackson and Marks (1999).

  12. 12.

    This compares favorably to the US Consumer Expenditure Survey (CES) in which Slesnick (1992) found that 1989 per capita total expenditure only captures 65% of per capita total expenditure recorded in the National Income and Product Accounts.

  13. 13.

    To be distinguished from Becker’s (1996) approach; see Steedman (2001) and Elster (1997).

  14. 14.

    Similarly, Witt (2001) distinguishes between goods used to directly satisfy needs, such as food and drink, which he calls ‘basic inputs’ (2001). They are non-renewable in that once they have been used, they cannot be used again. On the other hand, ‘tools’ are different in that they include relatively more durable goods such as ovens and clothing which are used by consumer to produce lower order goods(see Witt and Woersdorfer 2010).

  15. 15.

    The 12 categories, together with “miscellaneous and other goods”, add up to total expenditures. From 1987 to 2006 the survey contains a macro-code for each of the 13 categories. For 1986, the FES contains macro-codes only from the first six categories (from housing to clothing and footwear), plus other macro-categories which are not consistent with the other seven categories listed above (household goods, household services, personal goods and services, motoring, fares and other travel, leisure goods, and leisure services). We thus constructed, for 1986, these seven macro-categories aggregating micro-categories (disaggregate expenditures) in order that they be consistent with the way they are formed in the years 1987–2006.Due to the quality of the data, it was not possible to control for other factors, such as geographic location. For a discussion of the empirical significance of these socio-demographic factors, we refer the reader to Calvet and Common (2003) and references therein.

  16. 16.

    Note that since − 1 ≤ ρ μ  ≥ 1 we have 0 ≤ d ≥ 2.

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Acknowledgements

We would like to thank Ulrich Witt, Paolo Saviotti, Giorgio Fagiolo, Nicholas Rohde, Liana Wortley, the anonymous referee who provided comments on the paper during the submission process, the participants at the 13th conference of the International Joseph A. Schumpeter Society International Schumpeter Society held in Aalborg (2010), as well members of the Evolutionary Economics Group at the Max Plank Institute of Economics, for very useful comments. We thank the UK Data Archive for providing access to the UK Family Expenditure Survey. The usual disclaimer applies.

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  1. Griffith Business School, Griffith University, Gold Coast Campus, Gold Coast, Qld, 4222, Australia

    Andreas Chai

  2. Laboratory of Economics and Management, Scuola Superiore Sant’Anna, Piazza Martiri della Libertà, 33, 56127, Pisa, Italy

    Alessio Moneta

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  1. Andreas Chai
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Correspondence to Andreas Chai .

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  1. , Lehrstuhl für Innovationsökonomik, University of Hohenheim, Wollgrasweg 23, Stuttgart, 70593, Germany

    Andreas Pyka

  2. , Department of Business and Management, Aalborg University, Fibigerstraede 16, Aalborg East, 9220, Denmark

    Esben Sloth Andersen

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Chai, A., Moneta, A. (2013). Back to Engel? Some Evidence for the Hierarchy of Needs. In: Pyka, A., Andersen, E. (eds) Long Term Economic Development. Economic Complexity and Evolution. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-35125-9_3

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