1. understanding alcohol consumption across countries
Kenneth Clements, Yihui Lan and Haiyan Liu
University of Western Australia

2. Introduction
Alcohol and food consumption across income distribution, 153 countries in 2011
Item
1st quartile
2nd quartile
3rd quartile
4th quartile
Food share (%)
11.4
21.0
31.1
45.8
Alcohol share (%)
1.4
2.4
2.3
2.2
Alcohol/Food (%)
12.5
8.2
4.9
Income (US=100)
66.6
34.3
19.3
5.5

3. Previous Studies
Citations

4. GLOBAL ALCOHOL CONSUMPTION: PRIOR STUDIES
Author(s)
Comments
Gallet (2007)
Fogarty (2010)
Analytical summary of prior estimates of demand elasticities for beer, wine and spirits
Clements and E. A. Selvanathan (1987), E. A. Selvanathan (1991), Clements, Yang, and Zheng (1997), S. Selvanathan (2006) and S. Selvanathan & E. A. Selvanathan (2007)
Tastes seem to differ across countries as judged by demand equations
Anderson, Nelgen and Pinilla (2017), Anderson and Pinilla (2018)
Extensive global wine database, 1860 to Case studies of wine production, consumption and trade for numerous countries
Smith and Solgaard (2000), Bentzen, Eriksson and Smith (2001), Aizenman and Brooks (2008), Colen and Swinnen (2016), Holmes and Anderson (2017), Mills (2018), Anderson, Meloni and Swinnen (2018)
Globalisation seems to lead to homogenisation of consumption patterns, especially for beer and wine. Still, some important differences remain between countries
GLOBAL ALCOHOL CONSUMPTION: PRIOR STUDIES
Issue
Author(s)
Comments
Meta Studies of Demand for Beer, Wine and Spirits
Drinking Patterns Internationally: Early Studies
New Database and Analysis
Cross-country similarities

5. Data
Price and expenditure on alcoholic beverages from 153 countries in 2011 provided by World Bank. An example: US Half of alcohol expenditure on beer -> beer-intensive

6. 61% countries are “specialised” drinkers
Geometry of Drinking
100
61% countries are “specialised” drinkers
Spirits Intensive 50 50
Wine Intensive
Beer
Intensive US
100
100 50
Diversified

7. Preliminary Tests of the Law of Demand
A Non-Parametric Approach
LOD states that an increase in the price of a good results in a decrease in its consumption, real income held constant.
Quantity relative to average
Price relative to average
Below
Above I II IV
III

8. The Covariation of Quantities and Prices of Alcohol

9. An Index-number Approach
LOD implies negative correlation coefficient between prices and quantities
Divisia variance of prices and quantities
Covariance of prices and quantities

10. Correlation between Prices and Quantities
Histogram of the 153 correlation coefficients as follows:
Density
86%
Correlation coefficient ρc

11. A Demand System Modified Rotterdam Model Then, Income elasticity
Index of
total alcohol
Then, Income elasticity
Budget share
of good i
Substitution
term
Slutsky price elasticity
(total alcohol held constant)
Homogeneity and Symmetry are not rejected

12. Estimation Results Slutsky Matrix (×100) Budget Price Elasticities
Shares (%)
Price Elasticities
Beer
Wine
Spirits
Beer
Wine
Spirits
47.2
Beer
0.17
0.28
Wine
24.6
0.33
-0.67
0.34
Spirits
28.2
0.47
0.30
-0.77

13. Utility Interactions
Define , the inverse matrix is proportional to the Hessian matrix of the utility function
Matrix (×100)
Beer
Wine
Spirits
Beer
Wine
Spirits

14. Concluding comments
43% countries are beer-intensive, beer is the most popular alcohol.
Preliminary tests support the Law of Demand.
The own-price elasticity for beer, wine and spirits are negative and not far from –0.6.
Beer, wine and spirits are substitute for each other.

15. References
Aizenman, J., and E. Brooks (2008). “Globalization and Taste Convergence: The Cases of Wine and Beer.” Review of International Economics 16: Anderson, K., G. Meloni and J. Swinnen (2018). “Evolving Consumption Patterns, Regulations and Industrial Organization of the Global Alcohol Market.” Wine Economics Research Centre, University of Adelaide, Working Paper No Anderson, K, S. Nelgen and V. Pinilla (2017). Global Wine Markets, 1860 to 2016: A Statistical Compendium. Adelaide: University of Adelaide Press. Anderson, K., and V. Pinilla (2018). Wine’s Evolving Globalization. Cambridge: Cambridge University Press. Bentzen, J., T. Eriksson V. Smith (2001). “Alcohol Consumption in European Countries.” Cahiers d’Economie et Sociologie Rurales 60/61: 50–75. Clements, K. W., and E. A. Selvanathan (1987). “Alcohol Consumption.” Chapter 5 in H. Theil and K. W. Clements, Applied Demand Analysis: Results from System-Wide Approaches. Cambridge, Mass.: Ballinger. Clements, K. W., W. Yang, and S. W. Zheng (1997). “Is Utility Additive? The Case of Alcohol.” Applied Economics 29: Colen. L., and J. Swinnen (2016). “Economic Growth, Globalisation and Beer Consumption.” Journal of Agricultural Economics 67: 186–207. Fogarty, J. (2010). “The Demand for Beer, Wine and Spirits: A Survey of the Literature.” Journal of Economic Surveys 24/3: Gallet, C. A. (2007). “The Demand for Alcohol: A Meta-Analysis of Elasticities.” Australian Journal of Agricultural and Resource Economics 51: Holmes, A., and K. Anderson (2017). “Convergence in National Alcohol Consumption Patterns: New Global Indicators.” Journal of Wine Economics 12: Mills, T. C. (2018). Is there convergence in national alcohol consumption patterns? Evidence from a compositional time series approach. Journal of Wine Economics 13: Selvanathan, E. A. (1991). “Cross-Country Alcohol Consumption Comparison: An Application of the Rotterdam Demand System.” Applied Economics 23: Selvanathan, S. (2006). “How Similar are Alcohol Drinkers? International Evidence.” Applied Economics 38: Selvanathan, S., and E. A. Selvanathan (2007). “Another Look at the Identical Tastes Hypothesis on the Analysis of Cross-Country Alcohol Data.” Empirical Economics 32: Smith, D. E., and H. S. Solgaard (2000). “The Dynamics of Shifts in European Alcoholic Drinks Consumption.” Journal of International Consumer Marketing 12: 85–109.