Factors of Permanent Income and effects over Consumption in Pakistan (1973-2013)

Abstract

This  Study  significantly  observes  long run as well as  the short run effect  of  the  permanent income (PI) on consumption (C) the same as initiated by the Milton Friedman employing ARDL to Cointegration bound testing approach and Error Correction Model (ECM). The reason of the current study is to discover the degree to which wealth indicators connecting to PI may have an effect on consumption with respect to Pakistan like GNE (Gross National Expenditure), GNS (Gross National Savings), GVA (Gross Value Added), NR (Natural Resources) and TR (Total Reserves) span from 1973 to 2013. Above tests show long run association exists among the selected variables. According to ECM correction process is slow and short-run disequilibrium not at all adjusts completely in the current period.

Keywords: Consumption, Consumption function, Permanent Income,