Household Consumption and Saving Behaviour in Pakistan: An Application of the Extended Linear Expenditure System

The paper aims at developing a complete set of income and price elasticities of household consumption and saving for Pakistan by applying the Extended Linear Expenditure System (ELES) to the data of the 1979 Household Income and Expenditure Survey. Items like Rent on Housing, Furniture & Fixture, Education, Recreation, and Traveling & Transportation were found to be income-elastic as well as fairly sensitive to changes in (own) prices. As regards the cross-price effects, food prices turned out to be the most important determinant of demand for all other commodities and also of total expenditure (hence of saving). Expenditure on education is particularly affected by the rising cost of food.