Submit your papersSubmit Now
For Enquiries: [email protected]
IIARD LogoIIARD

Determinants of Aggregate Consumption Expenditure in Nigeria (1981-2015)

Eberechi B. Ikwuagwu, Florence O. Ariwa & Kingsley O. Onyele

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.

Keywords

Consumptiongross domestic productinterest rateinflation and tax revenue

References

Akekere, J. & Yousuo, P. (2012). Empirical analysis of change in income on private consumption expenditure in Nigeria from 1981 to 2010. International Journal of Academic Research in Business and Social Sciences, Vol. 2, No. 12. Babalola, O. O., Danladi, J. D., Akomolafe, K. J. & Ajiboye, O. P. (2015). Inflation, interest rates and economic growth in Nigeria. European Journal of Business and Management, Vol.7, No.30. Chukwulozie O.E. (2006). Life insurance as a source of long time savings in Nigeria: Regulator?s Perspective. Central Bank of Nigeria publication, Vol. 30, No.1, pp. 20- 31. Cromb, R. & Corugedo, E. (2004). Long-term interest rates, wealth and consumption. Bank of England Working paper. Deutsch, J. & Silber, J. (2005). Measuring multidimensional poverty: An empirical comparison of various Approaches. Review of Income and Wealth, 51 (1):145-174. Dutta, N. (2016). Determinants of Keynes consumption function. Economics discussion. Elmendorf, D. W. (1996). The effect of interest-rate changes on household saving and consumption: A survey. Federal Reserve Board. Ezeji, C. E. & Ajudua, C. I. (2015). Determinants of aggregate consumption expenditure in Nigeria. Journal of Economics and Sustainable Development, Vol.6, No.5. Fabiosa, J. F., & Jensen, H. (2002). Microeconomic Adjustments of Households to Macroeconomic Shocks: Household Level Welfare Impacts of the Indonesian Economic Crisis. Presented at the AAEA Meeting, Long Beach, CA. Fasoranti, M. M. (2012). The determinants of consumption pattern among rural dwellers of Ondo State (Case study of Akoko North-West Local Government). European Scientific Journal March edition vol. 8, No.6. Ibiwoye, A., Ideji, J. & Oke, B. (2010). The determinants of life insurance consumption in Nigeria: A co-integration approach. International journal of academic research vol. 2. No. 4. Iyoha, M. A. (2001). Policy simulation with macro econometric models of the Nigerian economy. Economic and Financial Review 2 (1), 21 – 25. Kapoor, M. & Ravi, S. (2009). The effect of interest rate on household consumption: Evidence from a Natural Experiment in India. Keynes, J.M (1936) in Fasoranti, M. M. (2012). The General Theory of Employment, Interest and Money. London Press. Odionye, C. J., Ugwuebe, S. U. & Ibeleme, S. O. (2015). The effect of financial wealth on private consumption: Evidence from Nigeria. British Journal of Economics, Management & Trade 6(4): 300-307. Oduh, M. O., Oduh, M. O. & Patterson, O. C. (2012). The impact of consumer confidence and expectation on consumption in Nigeria: Evidence from Panel Data. European Journal of Business and Management. Vol 4, No.9. Oladapo, B., Danladi, J., Akomolafe, K. & Ajiboye, O. (2015). Inflation, Interest Rates and Economic Growth in Nigeria. European Journal of Business and Management, Vol.7, No.30. Onwumere, J. U. J., Okore, A. O. & Ibe, I. G. (2012). The impact of interest rate liberalization on savings and investment: Evidence from Nigeria. Research Journal of Finance and Accounting, Vol 3, No 10. Udoka, C. & Roland, A. (2012). The effect of interest rate fluctuation on the economic growth of Nigeria, 1970-2010. International Journal of Business and Social Science Vol. 3 No. 20. Udude, C. C. (2015). Impact of interest rate on savings on the Nigeria?s economy (1981- 2013). Journal of Policy and Development Studies Vol. 9, No. 3. Wilcox, J. A. (1990). Nominal interest rate effects on real consumer expenditure. Business Economics.

More Articles from INTERNATIONAL JOURNAL OF ECONOMICS AND FINANCIAL MANAGEMENT

Bridging Legal, Financial, and Data Governance in Enterprise AI: Emerging Trends

Author: Funmilayo Ashore-Onisemo, Ebehiremen Faith Iziduh, Uchechi Mary-Linda Unamma, Ifeanyichukwu Jeffrey Okwesa

Macroeconomic Policies and Economic Stability in Nigeria

Author: Abel-Tariah Emmanuel Onate, Okon, Ekanem Nsikhe, Nwenyi Francis Onwe

Determinants of Bank Liquidity in Nigeria

Author: Nelson Johnny Ebifemo-ere Stephen