Consumer service expenditure and economic development: a cross-country study

The influence of income levels on the demand for consumer services is examined. For twenty-six categories of services income elasticities are established. Also the influence of price and other variables, on the quantity demanded of a consumer service are investigated. The primary aim is to determine whether the relationship between income and consumer service demand is consistent across a range of countries. This enables some comments to be made on the "post-industrial society" hypothesis which suggests that the advanced economies experience a particularly high income elasticity for the consumer service sector - thus a greater proportion of resources are devoted to this area as a result of demand influences. The results of the cross-section empirical analysis, based on data derived for thirty-four countries on an internationally comparable basis, suggest that the consumer service sector as a whole exhibits a relatively low income elasticity when compared with durable goods. However this sector is a heterogeneous group and the thesis shows a wide variety of responses when a disaggregated analysis is undertaken. A number of functional forms are used for each service in ordinary least squares multiple regression, which permit a variety of hypotheses regarding the behaviour of income elasticity at different income levels to be tested. The countries used in the analysis varied greatly in their traditions, geography and so on and yet relatively consistent relationships between income and consumer service demand are shown.