An Empirical Research On Engel’s Law And Engel’s Coefficient

The Engel’s Law and the Engel’s Coefficient can measure the rich level of a family. But due to the Engel’s Law and the Engel’s Coefficient is an empirical law concluded from the actual data analysis, and there is no deep theoretical basis of the Engel’s Law and the Engel’s Coefficient, and it ignores a lot of important influencing factors which can indicate the family’s rich level and cause a great impact on it, so we need to analyze the applicability and limitations of the Engel’s Law and the Engel’s Coefficient in specific economic environment when it is used to measure the living standards of a country or a region.This paper studies and analyzes the applicability and limitations of the Engel’s Law and the Engel’s Coefficient, and chose some panel data from our country’s30provinces and cities from1997to2007, and employs econometric modeling methods and statistical analysis methods to test the effectiveness and adaptability of the Engel’s Law and the Engel’s Coefficient in our country. First we construct a panel data model with individual member equation (N=30) and panel data model with time cross-section equation (T=11), and then apply a statistical test of the Engel’s Law and the Engel’s Coefficient proposed by Working&Leser in1963, and then evaluate the overall validity of the Engel’s Law and the Engel’s Coefficient in various regions of our country; and then, using the descriptive statistical analysis and cluster analysis method to assess the adaptability of the Engel’s Law and the Engel’s Coefficient in the various regions of our country; and finally, deeply analyze the root causes of the inadaptability the Engel’s Law and the Engel’s Coefficient in the various regions of our country, supplemented by Keynesian absolute income and consumption functions of the panel model results.The results show that, in China, Engel’s law is of good validity while Engel’s Coefficient is of poor applicability. There are three factors that account for the phenomenon:firstly, the variations of food and drink culture, consumption habits and social welfare policy in urban and rural areas cause negative correlation between the expense and income by food; secondly, for the low level of commercialization of self-sufficient food in rural area, the national statistics could not correspond with the reality; thirdly, the prerequisite condition of calculating the Engle’s coefficient is hard to fulfill in China.