An Essay on Consumption Hypotheses: Evidence from Pakistan (original) (raw)
Related papers
As in other economies, consumption expenditure is the largest component of the Gross Domestic Product (GDP) of Pakistan economy. The figure has been estimated around 80 percent of the GDP and demonstrates that historically, Pakistan’s economic growth is characterized as consumption-led growth. The present pa- per aims to explore the relationship between income and consumption using annual time series data for the period: 1975 to 2012 in Pakistan. For empirical investigation the linear regression model and the method of Least Squares is used as analytical techniques. Empirical results support the existence of a significant positive relationship between income and consumption. The finding suggests that long term committed planning is indispensable to enhance the productive capacity of the economy, employment opportunities and reduce poverty levels more effectively.
Factors of Permanent Income and effects over Consumption in Pakistan (1973-2013)
Developing Country Studies, 2013
This Study significantly observes long run as well as the short run effect of the permanent income (PI) on consumption (C) the same as initiated by the Milton Friedman employing ARDL to Cointegration bound testing approach and Error Correction Model (ECM). The reason of the current study is to discover the degree to which wealth indicators connecting to PI may have an effect on consumption with respect to Pakistan like GNE (Gross National Expenditure), GNS (Gross National Savings), GVA (Gross Value Added), NR (Natural Resources) and TR (Total Reserves) span from 1973 to 2013. Above tests show long run association exists among the selected variables. According to ECM correction process is slow and short-run disequilibrium not at all adjusts completely in the current period.
An Assessment of the Consumption Function for Iran
European Online Journal of Natural and Social Sciences, 2020
In this study, the real private consumption model for Iran was estimated by applying yearly data from 1990 to 2018. The ARDL method is used to assess short-term and long-term relationships between private consumption, labor income, interest rate, wealth, and unemployment rate. According to long-term estimates, income and wealth determine the actual consumption in Iran. However, in the short run, current incomes, wealth, real interest rates, and the unemployment rate are the key determinants of private consumption in Iran. The dynamic of the consumption function shows that all the factors of consumption i.e. real disposable income, wealth, and unemployment rate, real interest rate, have a noteworthy effect on aggregate consumption. The minor and significant coefficient of wealth indicates that the consumption decision is weakly affected by wealth. It provides evidence of the validity of AIH for Iran.
SHORT TERM EFFECTS OF PERMANENT INCOME’S FACTORS OVER CONSUMPTION IN PAKISTAN (1976-2009)
This paper critically examines the short term effects of the permanent income over consumption as introduced by the Milton Friedman. The purpose of the present study is to explore the extent to which wealth indicators relating to permanent income can have an impact on consumption with respect to the income related indicators observed in Pakistan like gross value added, gross national expenditure, total reserves, natural resources and gross savings. The analysis of the consumption and income determinants has been carried out from 1976- 2009. An error correction model has been conducted to study this Permanent income phenomenon to observe the impacts of all these variables in short run. The research showed the results that the adjustment process is slow and short-term disequilibrium of previous period never adjusts completely in the current period. Short run adjustment pace of consumption is statistically significant, indicating that short run discrepancies do not adjust completely in the same period. Based on these evidences it is apparent that consumption and wealth variables are important to determine the macroeconomic stability in Pakistan. If the government gives priority to long-term consumption on the basis of exploring the available natural resources, it can gain better results in economic growth, poverty alleviation and unemployment reduction. The policy makers and economists in financial sector need to focus on the greater opportunities for wealth creation in the economy income hymen and the focus of this study is also on the effects of permanent income factors over consumption. A limitation of the research was the inclusion of only a limited number of wealth indicators.
Estimation of Consumption Function for Developing Economies: China, Turkey, Vietnam and Bangladesh
I, 2020
This study analyses the determinants of consumption function for four countries: China and Turkey as Upper Middle-Income Economies (UMIE); Bangladesh and Vietnam as Lower Middle-Income Economies (LMIE). It used a model based on the ARDL technique to analyze the time series data for the period of 1985- 2018. The results reveal that wealth and labor income have a similar impact on consumption in UMIE and LMIE since they affect significantly and positively aggregate consumption. Unemployment and real interest rates have an analogous result for UMIE while assorted results LMIE. The real interest rate harms RPAC as evidence of income effect. However, the short-term wealth and real GDP positively affect real RPAC whereas the unemployment rate and real interest rate negatively affect aggregate real private consumption of the selected economies.
The Estimation ofAggregate Consumption Function for High Income Countries
Pakistan Journal of Engineering, Technology & Science
Aggregate Real Private Consumption (ARPC) is one of the major components of the Gross Domestic Product (GDP)that contributes to specify any economy’s long term living standards. The contribution of ARPC stands on an average around 55%. It is therefore important to understand the components of the consumption which is almost more than half of the aggregate economic expenditure. The study is an attempt to make a case for developing countries to bring policy level changes in order to determine the consumption pattern of developing countries’ GDP. Using appropriate empirical model the study investigates the validity of Permanent Income Hypothesis (PIH) and Absolute Income Hypothesis (AIH)on ARPC for selected developed economies. The results of the study reveals that the important determinants of ARPC in the long-run are real GDP and wealth, while in the short-run they are real interest rate and unemployment rate.
Understanding household consumption patterns in Pakistan
Journal of Retailing and Consumer Services, 2007
This study analyzes the household consumption patterns in urban and rural regions using Household Integrated Expenditure Survey of Pakistan for the year 2001-2002. Engel curves are estimated by spline quadratic expenditure system for expenditures on 18 commodity groups. The breakdown of the household size into demographic groups by age and sex has proved to be a successful exercise in explaining consumption patterns. This study shows that consumption of food and non-food items is significantly affected by changes in total expenditure and household size. According to the findings of the current study, grains, dairy, housing and health appear as luxury commodities in urban areas while poultry, fruit, electricity, entertainment and durables are treated as luxuries in the rural area. Moreover, poverty has proved to be a main cause of illiteracy because education appears as a luxury commodity for the poor.
Income and Consumption Relationship in India: An ARDL Model Approach
Income and Consumption Relationship in India: An ARDL Model Approach Income and Consumption Relationship in India: An ARDL Model Approach 1 Associate Professor, SVKM's NMIMS, Indore 2 Associate Professor in Economics, Prestige Institute of Management and Research, Indore Abstract The relation between income and consumption has been observed by economists for a long time. However, J K Keneys, for the first time, studied the theoretical level of the consumption behaviour and proposed Absolute Income Hypothesis (AIH) from The General Theory according to which the current consumption expenditure mainly depends on current income. India, being a country with diverse culture and socio economic conditions, is developing at a rapid pace with the introduction of economic reforms. A large private sector and functioning markets are subject to rigid state controls until the uncertain and gradual reforms of 1980s. In the political environments under which reforms are initiated and implemented...
Pakistan journal of humanities and social sciences, 2022
The sustainable development of a country is assumed to be a healthy sign for domestic consumers as well as producers. As private consumption is a vital component of real gross domestic product (GDP) and it can influence economic growth. This study explored a dynamic relationship between economic growth represented by real GDP and real private consumption expenditure (PCE). Stationarity of private consumption expenditure and GDP in first differences led to cointegration analysis between these time series data. Cointegration test indicated the existence of co-integrating relationship between these two variables. Vector error correction model (VECM) was employed to test the possibility of long-run adjustment towards equilibrium as well as nature of short-run dynamics. Granger causality test shows plausible role of short run consumption dynamics significantly improve predictive power of the model for real GDP growth.