Verification of Engel's laws of household consumption with reference to the consumption of food and non-alcoholic beverages

Abstract

More than 150 years after the Engel document "Die Productions und Consumptionsverhaltnisse des Königreichs Sachsen", economists and policy makers pay tireless attention to his work, especially its applicability and relevance in different economic contexts. Households with low living standards will spend more money to cover basic needs (food, clothing, housing, etc.). As incomes increase, spending is focused on buying goods for their comfort (health, transport, recreation and culture, tourism). The aim of this paper is to examine the value of Engel 's law in household consumption in Bosnia and Herzegovina in the periods from 2004, 2007, 2011 and 2015. Secondary data from the following database were used to interpret household dynamics: I MB, NIS, EUROSTAT and the BiH Agency for Statistics. We investigated the relationship between consumption and income through regression analysis and found that Engel's law is applied in the BiH economy, with specific developments and impacts. In developed economies, the transition to services and consumption is faster. In this paper, a nonlinear double logarithmic regression model will be used to test the validity of Engel's first law of the influence of income on the value spent on the purchase of food and soft drinks. The paper is organized into four parts as follows: after reviewing the literature, the data and methodology of the study are presented, the fourth part is focused on the research results, and the last part is dedicated to the conclusions.