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The Effect of stock market wealth on private consumption in Zimbabwe

  • Samuel Bindu


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

  • Lloyd Chigusiwa
  • D. Mazambani
  • L. Muchabaiwa
  • V. Mudavanhu
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    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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    Article provided by Eastern Macedonia and Thrace Institute of Technology (EMATTECH), 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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    1. Paresh Narayan & Russell Smyth, . "Dead Man Walking: An Empirical Reassessment of the Deterrent Effect of Capital Punishment Using the Bounds Testing Approach to Cointegration," American Law & Economics Association Annual Meetings 1028, American Law & Economics Association.
    2. Martha Starr-McCluer, 2002. "Stock Market Wealth and Consumer Spending," Economic Inquiry, Western Economic Association International, vol. 40(1), pages 69-79, January.
    3. Peltonen, Tuomas A. & Sousa, Ricardo M. & Vansteenkiste, Isabel S., 2012. "Wealth effects in emerging market economies," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 155-166.
    4. Lise Pichette, 2004. "Are Wealth Effects Important for Canada," Bank of Canada Review, Bank of Canada, vol. 2004(Spring), pages 29-35.
    5. Paiella, Monica, 2007. "Does wealth affect consumption? Evidence for Italy," Journal of Macroeconomics, Elsevier, vol. 29(1), pages 189-205, March.
    6. Orazio P. Attanasio & James Banks & Sarah Tanner, 2002. "Asset Holding and Consumption Volatility," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 771-792, August.
    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. Alexander Ludwig & Torsten Sløk, 2002. "The Impact of Changes in Stock Prices and House Priceson Consumption in OECD Countries," IMF Working Papers 02/1, International Monetary Fund.
    9. 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.
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