Income and Household Consumption Expenditure in Nigeria

Onanuga, Abayomi and Oshinloye, Michael and Onanuga, Olaronke (2015): Income and Household Consumption Expenditure in Nigeria. Published in: Ago-Iwoye Journal of Social and Behavioral Science , Vol. 4, No. 2 (31 July 2015): pp. 123-139.

Abstract

The study estimates consumption function for Nigeria applying strictly “Absolute Income” hypothesis as introduced by Keynes. Formulating a model that specifies real consumption as a stable function of real income we applied Granger representation theorem so as to identify short and long run relationship. And our data set being the Gross domestic product by type of expenditure (proxy of income) and household consumption expenditure (both at constant 2005 prices - naira) for the period 1970-2011. The marginal propensity to consume MPC is ~0.64 and Nigeria’s autonomous consumption is estimated to be 1.93 trillion naira. Since Keynes emphasizes short run consumption function, the short run MPC (0.78) is less than APC (0.88), which makes it non-proportional, this complies with Keynes theoretical position but defies the long run consumption function of being proportional to APC as 0.64 is not equal to 0.88.

• Item Type: MPRA Paper
• Language: English
• Keywords: consumption, gross domestic product, Nigeria
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General; E - Macroeconomics and Monetary Economics > E0 - General > E01 - Measurement and Data on National Income and Product Accounts and Wealth ; Environmental Accounts; E - Macroeconomics and Monetary Economics > E1 - General Aggregative Models > E12 - Keynes ; Keynesian ; Post-Keynesian; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy

References

Akekere, J. and Yousuo, P.O.J. (2010).Empirical Analysis of Change in Income on Private Consumption Expenditure in Nigeria from 1981- 2010. International Journal of Academic Research in Business and Social Sciences, 2(11).

Ando, A. and Modigliani, F. (1963). The ‘Life Cycle’ Hypothesis of Saving: Aggregate Implications and Tests. American Economic Review 53, 55-84.

Boskin, M.J. (1978).Taxation Savings and Rate of Interest. Journal of Political Economy, 86(2), S3-S27.

Carroll, C. (2001). A Theory of the Consumption Function, With and Without Liquidity Constraints (Expanded Version). Journal of Economic Perspectives, 15(3), 23-46.

Dernburg, T.F. and McDougall, D.M. (1976).Macroeconomics. The Measurement, Analysis and Control of Aggregate Economic Activity. M-Graw-Hill, Tokyo.

Emerson, J. (2011). Consumption-Savings Investigation: United States. Journal for Economic Educators, (11)1.

Engel, R.F. and Granger, C.W. (1987). Cointegration and Error Correction: Representation Estimation and Testing. Econometrica, 55, 251-276.

Fisher, I. (1930). The theory of Interest. London MacMillan.

Friedman, M. (1975). A Theory of the Consumption Function. Princeton, NJ: Princeton University Press.

Goldsmith, R. (1955). A Study of Savings in the United States. vol.3, Princeton: Princeton University Press.

Hall, R.E. (1978). Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence. Journal of Political Economy, 86(6), 971–87.

Keynes, J.M. (1935). The General Theory of Employment, Interest and Money. Harvest/HBJ, San Diego, New York, London, 1964.

Kuznets, S. (1946). National Product since 1869. New York National Bureau of Economic Research.

Laibson, D., Andrea, R. and Jeremy, T. (2002). Instant Gratification Over the Lifecycle. Mimeo, Harvard University.

Ofwona, A.C. (2013). An Estimation of the Consumption Function for Kenya Using Keynes’ Absolute Income Hypothesis for the Period 1992-2011. Journal of Emerging Trends in Economics and Management Sciences, 4(1), 103-105.

Olofin, S. (2001). An Introduction to Macroeconomics. Malthouse Social Science Studies, Lagos.

Onodje, M.A. (2009). An Insight into the Behavior of Nigeria’s Private Consumer Spending. African Journal of Business Management, 3(9), 383-389.

Robert, E.L. (1976). Econometric Policy Evaluation: A Critique. Karl Brunner and Allan H Meltzer, eds., The Phillips Curve and Labour Markets, Carnegie- Rochester Conference Series on Public Policy, 1, 19-46.

Samuelson, P.A. and Nordhaus, W.D(1998). Macroeconomics. Irwin/ McGraw-Hill New York.

Smithies, A. (1945). Forecasting Post War Demand: I. Econometrica, 13, 1-14.

Tobin, J. (1951).Relative Income, Absolute Income and Savings. Toney Trade and Economic Growth: Essays in Honour of John H. Williams.