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The Effect of stock market wealth on private consumption in Zimbabwe

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  • Samuel Bindu

    ()
    (Bindura University of Science Education, P. Bag 1020, Bindura, Zimbabwe)

  • Lloyd Chigusiwa
  • D. Mazambani
  • L. Muchabaiwa
  • V. Mudavanhu
Registered author(s):

    Abstract

    The study seeks to examine stock market wealth effects on private non-durable consumption for Zimbabwean households using quarterly data from 1994(1) to 2008(2). The bounds testing approach to cointegration is employed to test the long run relationship between stock market wealth and consumption. An autoregressive distributed lag model (ARDL) analysis is implemented to examine the relationship among the variables both in the short-run and the long run. The empirical findings suggest significant wealth effects for Zimbabwe, a developing country. This contradicts the commonly held view that LDCs should have insignificant wealth effect since the financial system is still underdeveloped. The dynamic short run error correction model also shows a speedy convergence to long run equilibrium.

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    Bibliographic Info

    Article provided by Technological Educational Institute (TEI) of Kavala, Greece in its journal International Journal of Economic Sciences and Applied Research (IJESAR).

    Volume (Year): 4 (2011)
    Issue (Month): 2 (August)
    Pages: 125-142

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    Handle: RePEc:tei:journl:v:4:y:2011:i:2:p:125-142

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    Related research

    Keywords: wealth effects; consumption dynamics; income effect; convergence;

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    References

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    1. Paresh Kumar Narayan & Russell Smyth, 2006. "Dead man walking: an empirical reassessment of the deterrent effect of capital punishment using the bounds testing approach to cointegration," Applied Economics, Taylor & Francis Journals, vol. 38(17), pages 1975-1989.
    2. Monica Paiella, 2004. "Does wealth affect consumption? Evidence for Italy," Temi di discussione (Economic working papers) 510, Bank of Italy, Economic Research and International Relations Area.
    3. Lise Pichette & Dominique Tremblay, 2003. "Are Wealth Effects Important for Canada?," Working Papers 03-30, Bank of Canada.
    4. Martha Starr-McCluer, 2002. "Stock Market Wealth and Consumer Spending," Economic Inquiry, Western Economic Association International, vol. 40(1), pages 69-79, January.
    5. Strøm,Steinar (ed.), 1999. "Econometrics and Economic Theory in the 20th Century," Cambridge Books, Cambridge University Press, number 9780521633659.
    6. Alexander Ludwig & Torsten Sløk, 2002. "The Impact of Changes in Stock Prices and House Prices on Consumption in OECD Countries," IMF Working Papers 02/1, International Monetary Fund.
    7. Nikola Dvornak & Marion Kohler, 2007. "Housing Wealth, Stock Market Wealth and Consumption: A Panel Analysis for Australia," The Economic Record, The Economic Society of Australia, vol. 83(261), pages 117-130, 06.
    8. Keith Jefferis & Charles Okeahalam, 2000. "The impact of economic fundamentals on stock markets in southern Africa," Development Southern Africa, Taylor & Francis Journals, vol. 17(1), pages 23-51.
    9. Peltonen, Tuomas A. & Sousa, Ricardo M. & Vansteenkiste, Isabel, 2009. "Wealth effects in emerging market economies," Working Paper Series 1000, European Central Bank.
    10. Strøm,Steinar (ed.), 1999. "Econometrics and Economic Theory in the 20th Century," Cambridge Books, Cambridge University Press, number 9780521633239.
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    Cited by:
    1. Greenwell Collins Matchaya & Pius Chilonda & Sibusiso Nhelengethwa, 2013. "International Trade and Income in Malawi: A Co-integration and Causality Approach," International Journal of Economic Sciences and Applied Research (IJESAR), Technological Educational Institute (TEI) of Kavala, Greece, vol. 6(2), pages 125-147, September.

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