Consumption & Savings Behavior in Pakistan
Like many other countries, aggregate consumption constitutes a major portion of Gross Domestic Product (GDP) in Pakistan. Consumption decisions determine savings decisions. In long term growth literature, differences in long term growth had been explained to a large extent by differences in the rate of savings which also determine a country’s investment in productive capacity, developing human capital and improving socio-economic infrastructure. In this study, we test three famous consumption models in the literature for their empirical verification taking macro level data for Pakistan economy. These include Keynes (1935) consumption function, Robert Hall’s (1978) Random Walk Hypothesis and Milton Friedman’s (1957) Permanent Income Hypothesis. Furthermore, we also run two multiple regression models using Ordinary Least Squares (OLS) approach to study the determinants of savings in Pakistan economy. The results indicate evidence of consumption smoothing and relatively stable Average Propensity to Consume (APC) in the long run. In the second set of models for analyzing determinants of saving, it was found that nominal national savings are positively related with aggregate level of income and exports while negatively related with wealth variables like total market capitalization of stocks. In line with theory, it was found that nominal national savings are negatively associated with federal debt, government expenditure and inflation. In the alternate model taking variables in growth form, it was found that national savings rate is positively related with GDP growth rate, exports to GDP ratio, remittances growth rate and negatively related with rate of inflation.
|Date of creation:||03 Nov 2012|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters,in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
- Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, June.
- Shahbaz Nasir & Mahmood Khalid, 2004. "Saving-investment Behaviour in Pakistan: An Empirical Investigation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(4), pages 665-682.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:42496. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.