Engel’s law in China: Some new evidence

Abstract Engel's law states that the proportion of food in total consumption expenditure is negatively associated with household income. Different from other studies with time series, this paper investigates the applicability of Engel's law in China, with a sample of cross‐sectional data in 2016 covering the 31 provincial regions of China. The empirical results support Engel's law, and, especially after the consideration of food prices, which is represented by regional food purchasing power parities, the negative impact of income on Engel's coefficient becomes more statistically significant. Meanwhile, Engel's coefficient is positively related to the food price. According to different types of income elasticity, food is divided into two groups: life necessities and life nonnecessities. Then, the inferior Engel's coefficient (IEC) and superior Engel's coefficient (SEC) are calculated with the expenditures of necessary and nonnecessary food, respectively, and a further study shows that the negative relationship between income and the SEC is much weaker than that between income and the IEC. Besides, Engel's coefficient is more strongly affected by the price of food necessities than by that of food nonecessities.