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Macroeconomic Determinants of Household Consumption Expenditure in Ghana: A Multivariate Cointegration Approach

Author

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  • Christiana Osei Bonsu

    (Ghana Institute of Management and Public Administration, Ghana,)

  • Paul-Francois Muzindutsi

    (School of Accounting, Economics and Finance, University of KwaZulu-Natal, South Africa)

Abstract

Household consumption is generally considered to be the final purpose of economic activity, and the level of consumption per person is often viewed as a central measure of an economy's productive success. Thus, consumption is among the key determinants of well-being of citizens at the global level. This study used a multivariate cointegration approach to analyse the macroeconomic determinants of household consumption expenditure in Ghana. The sample period consists of annual time series from 1961 to 2013. The vector autoregressive model and Johansen cointegration approach were used to capture the short-and long-run relationships between selected macroeconomic variables and the household consumption in Ghana. The cointegration analysis revealed a significant long-run relationship between real household consumption and selected macroeconomic variables with a marginal propensity to consume of 0.7971. Granger causality, impulse response analysis and variance decomposition showed that, in the short run, household consumption is only affected by changes in price levels, while it has a significant effect on the real exchange rate and real economic growth. Findings reported in this study are helpful in understanding the macroeconomic role of household consumption expenditure in the Ghanaian economy

Suggested Citation

  • Christiana Osei Bonsu & Paul-Francois Muzindutsi, 2017. "Macroeconomic Determinants of Household Consumption Expenditure in Ghana: A Multivariate Cointegration Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 737-745.
    • Handle: RePEc:eco:journ1:2017-04-85
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    References listed on IDEAS

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    1. Alimi, R. Santos, 2013. "Keynes' Absolute Income Hypothesis and Kuznets Paradox," MPRA Paper 49310, University Library of Munich, Germany.
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    Cited by:

    1. Iheonu O Chimere & Tochukwu Nwachukwu, 2020. "Macroeconomic determinants of household consumption in selected West African countries," Economics Bulletin, AccessEcon, vol. 40(2), pages 1596-1606.
    2. Muhammad Salman Ahmad & Elżbieta Izabela Szczepankiewicz & Dai Yonghong & Farid Ullah & Ihsan Ullah & Windham Eugene Loopesco, 2022. "Does Chinese Foreign Direct Investment (FDI) Stimulate Economic Growth in Pakistan? An Application of the Autoregressive Distributed Lag (ARDL Bounds) Testing Approach," Energies, MDPI, vol. 15(6), pages 1-16, March.
    3. Wali Aya Rumbia & Abd Azis Muthalib & Bakhtiar Abbas & Pasrun Adam & Heppi Millia & La Ode Saidi & Muh. Irfandy Azis, 2020. "Crude Oil Prices, Household Spending and Economic Growth in the ASEAN-4 Region: An Analysis of Nonlinear Panel Autoregressive Distributed Lag," International Journal of Energy Economics and Policy, Econjournals, vol. 10(4), pages 437-442.
    4. Bah, Ibrahim Abubakarr, 2022. "Assessing Sierra Leone’s Consumption Function: A Cointegration and an Error Correction Model Approach," EconStor Preprints 266912, ZBW - Leibniz Information Centre for Economics.
    5. Monika Gupta & Shubhi Bansal, 2020. "Covid-19 Disruption of Middle-Class Monthly Household Income and Budget," International Journal of Economics and Financial Issues, Econjournals, vol. 10(6), pages 10-17.
    6. Xi Wang & Bisharat Hussain Chang & Emmanuel Uche & Qianli Zhao, 2024. "The asymmetric effect of income and price changes on the consumption expenditures: evidence from G7 countries using nonlinear bounds testing approach," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 23(1), pages 35-53, January.
    7. Segun Subair Awode & Emeka Okoro Akpa & Andy Titus Okwu, 2021. "The effect of remittance and volatility in remittances on macroeconomic performance in Africa: any lessons for COVID-19?," SN Business & Economics, Springer, vol. 1(10), pages 1-15, October.
    8. Idrys Fransmel OKOMBI, 2018. "Empirical Measure of Wealth Effects in Household Consumption: The Case of Congo," Applied Economics and Finance, Redfame publishing, vol. 5(5), pages 33-44, September.
    9. Eunice Adu-Darko & Emmanuel K Aidoo, 2022. "Government Stability in the Remittance-Economic Growth Link in Ghana," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 14(1), pages 1-14.
    10. Akpa, Emeka, 2018. "Private Remittances Received and Household Consumption in Ghana (1980-2016): An ARDL Analysis with Structural Breaks," MPRA Paper 87103, University Library of Munich, Germany.
    11. Okwu, Andy & Akpa, Emeka & Oseni, Isiaq & Obiakor, Rowland, 2020. "Oil Export Revenue and Exchange Rate: An Investigation of Asymmetric Effects on Households’ Consumption Expenditure in Nigeria," MPRA Paper 102080, University Library of Munich, Germany.
    12. Vietha Devia SS, 2019. "Analysis of Crude Oil Price and Exchange Rate Volatility on Macroeconomic Variables (Case Study of Indonesia as Emerging Economic Country)," International Journal of Business and Administrative Studies, Professor Dr. Bahaudin G. Mujtaba, vol. 5(5), pages 257-271.
    13. Fosu, Prince, 2020. "The Effect of Government Expenditure and Free Maternal Health Care Policy on Household Consumption in Ghana," MPRA Paper 101551, University Library of Munich, Germany.
    14. Voytenkov, Valentin & Demidova, Olga, 2023. "Impact of COVID-19 on household consumption in Russia," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 72, pages 73-99.

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    More about this item

    Keywords

    Cointegration; Ghana; Household Consumption; Macroeconomic Variables; Vector Autoregressive;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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