The theoretical and practical significance of Engel's coefficient

The theoretical and practical significance of Engel's coefficient

Engel coefficient
brief introduction
Engel's coefficient is the proportion of total food expenditure to total personal consumption expenditure
Engel, a German statistician in the 19th century, drew a rule on the change of consumption structure: the less a family's income, the greater the proportion of the expenditure on food in the family's income (or total expenditure). With the increase of the family's income, the proportion of the expenditure on food in the family's income (or total expenditure) will decrease, The poorer a country is, the greater the proportion of the average income (or the average expenditure) of each national is spent on the purchase of food. With the prosperity of the country, this proportion shows a downward trend
In short, the smaller the Engel's coefficient of a family or country, the richer the family or country's economy is. Of course, the more accurate the data are, the more accurate the family or country's economic response will be
formula
The formula of Engel's Law:
Change percentage of food expenditure / change percentage of total expenditure x 100% = ratio of food expenditure to total expenditure (R1)
or
Change percentage of food expenditure / change percentage of income x 100% = ratio of food expenditure to income (R2)
Note: R2 is also called income elasticity of food expenditure
Engel's law is based on empirical data. It is only applicable on the premise that all other variables are constant. Therefore, when we study the change of the proportion of food expenditure in income, we should pay more attention to the change of the proportion of food expenditure in income, It should also be considered that urbanization, food processing, catering industry and changes in food structure will affect the increase of household food expenditure. Only when the average level of food consumption is quite high, the further increase of income will not have an important impact on food expenditure
Engel's coefficient is a proportional number according to Engel's law, which is an indicator of living standards
Amount of food expenditure △ total expenditure x 100% = Engel coefficient
In addition to food expenditure, clothing, housing, daily necessities and other expenditures also increased in the proportion of growing household income or total expenditure, and then decreased
Engel's coefficient is an important index to measure the living standard of residents in the world. It generally decreases with the improvement of household income and living standard. Since the reform and opening up, the Engel's coefficient of urban and rural households in China has decreased from 57.5% and 67.7% in 1978 to 36.7% and 45.5% in 2005 respectively
In 2008, the proportion of food consumption expenditure of urban households in total household consumption expenditure was 37.9%, and that of rural households was 43.7%
Engel's law mainly describes a certain trend that the proportion of food expenditure in total consumption expenditure changes with the change of income. It reveals the correlation between residents' income and food expenditure, and uses the proportion of food expenditure in total consumption expenditure to explain the impact of economic development and income increase on living consumption, When the income level is low, it will play an important role in the consumption expenditure. With the increase of income, the focus of consumption will begin to shift to clothing, use and other aspects when the food demand is basically met. Therefore, the poorer a country or family lives, the greater the Engel coefficient; on the contrary, the richer the life, the smaller the Engel coefficient
application
Engel coefficient is often used to measure the living standard of people in a country or region in the world. According to the standard put forward by the FAO, the Engel coefficient of more than 59% is poverty, 50-59% is food and clothing, 40-50% is well-off, 30-40% is rich, and less than 30% is the richest, For example, the price comparison of consumer goods is different, the living habits of residents are different, and the special factors caused by different social and economic systems. For these incomparable problems in cross-sectional comparison, we should eliminate them when we analyze and compare them. In addition, we should pay attention to that Engel coefficient reflects a long-term trend when we observe the changes of historical situation, It is a long-term trend in the short-term fluctuation of ironing