Public Regulation and Its Impact on Cigarette Demand in Pakistan: A Critical Review

Abstract

This study attempts to estimate cigarette’s demand model in Pakistan. To this end, the study utilizes aggregate time series data which covers the period from 1981 to 2018. The Hausman’s test statistics reject the null hypothesisof exogenous cigarette prices. That is, the test confirms that cigarette prices are endogenous in nature, suggesting that cigarette prices are influenced by public policies and market conditions. Employing Instrumental Variable (IV) method, the study finds that cigarette prices negatively influence cigarette consumption. Specifically, cigarette consumption reduces in the range of 3% to 5% to a 10% increase in cigarette prices.Moreover, individual’s increases cigarette consumption in the range of 3.7% to 7.5% in response to a 10% increase in their real income. Further, increasing enrollment at public sector universities also gives rise to increased smoking. Finally, public regulations like health warnings, ban on cigarette advertisement and promotions significantly discourage smoking. The analysis recommends enforcement of public regulations to discourage smoking behavior in Pakistan.