Determinants of Aggregate Consumption Expenditure in Nigeria (1981-2015)
Abstract
The study investigated the determinants of aggregate consumption expenditure in Nigeria using time series data from 1981 to 2015. Based on the dataset sourced from Central Bank of Nigeria Statistical Bulletin, income (proxied by gross domestic product), interest rate, government revenue and inflation rate were the key determinants of aggregate consumption expenditure considered in this study. Following the behavioural pattern of the variables on the basis of time series property test involving Augmented Dickey-Fuller (ADF), Autoregressive Distributed Lagged model (ARDL) was adopted due to mixed integration of the variables. The result of the Auto Regressive Distributed Lagged (ARDL) model showed that income (proxied by gross domestic product) has a positive and significant effect on aggregate consumption expenditure in both short run and long run. Also, interest rate was significant in influencing aggregate consumption expenditure. The Granger causality test revealed that among the determinants of consumption expenditure considered, inflation rate was a strong predictor of consumption expenditure. The CUSUM and CUSUMSQ tests showed evidence of long run stability of the parameters of the model. It was therefore recommended among other things that policies that improves gross domestic product should be pursued such as encouraging small businesses and foreign investors by creating a friendly investment environment in the Nigerian economy in order to accelerate productivity which in turn spurs consumption of goods and services.
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