Vol (16), Issue (1), 2023.

Time-Varying Dynamics of Private Consumption in Pakistan

Salma Sadiq, Hassan Raza, Muhammad Haroon Rasheed

COMSATS University WAH, Pakistan

Al-Hamd Islamic University, Islamabad

University of Sargodha

Consumption is a crucial determinant of a healthy economy, and its direct linkage with income andemployment theories necessitates its study, particularly in the context of private consumption as aglobal issue. A range of macroeconomic and microeconomic indicators impact private consumption,making it vital to identify the factors that affect consumption in Pakistan. This study aims to achievethis by examining the influence of government spending, income, wealth, and real deposit rate, aswell as inflation and population as control variables, on private consumption from 1972 to 2021.The Johansen cointegration technique and the Error correction model (ECM) are utilized to test thelong-run and short-run impact, respectively. The findings demonstrate that private consumption hasa significant and long-run association with government spending, income, and population. In theshort run, real interest rate, inflation, and population have a significant impact on privateconsumption. No significant relationship between wealth and private consumption is observed inboth the short and long run. These results offer useful guidance to policymakers in Pakistan,indicating the need to increase spending on various development projects, such as human capitaldevelopment, industrial development, increased employment opportunities, and poverty reductionplans. Such initiatives would stimulate the economy and promote private consumption.Additionally, the implications of interest rates and wealth supply provide guidelines for monetarypolicy implications, rendering the study a unique overview of private consumption in Pakistan.
Keywords: Private consumption, Government Policies, Monetary Policy.




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