Investigating the Link between Beer Consumption and Economic Conditions in Canada: A Panel Data Analysis

Abstract

In this paper we examine the link between beer sales, unemployment and other economic variables in Canada using provincial level panel data at monthly frequencies for the period from January 2000 to December 2010. Our panel cointegration test results indicate a stable long-run relationship between beer sales per-capita and the economic variables considered. When we account for this cointegration by specifying panel error correction models we find strong evidence that beer sales in Canada are pro-cyclical with per-capita sales increasing during good economic times as indicated by the levels of unemployment and average hourly earnings. We also find strong evidence of habit persistence in Canadian beer sales as would be expected for an addictive product. The policy implications of these results are discussed.