The Impact of Consumer Confidence and Expectation on Consumption in Nigeria: Evidence from Panel Data

Abstract

The Nigerian economy witnessed a significant growth turning point from the early 2000s after it returned to democratic rule in 1997. But the strong economic growth posted by the country has not served to substantially reduce poverty, inequality, unemployment, exchange rate, inflation and interest rate spread. Consequently, there is a damping effect on consumer confidence, hence low spending. Fixed effect panel model was used to underscore the importance of consumer confidence and expectations in household spending, using data from the CBN survey of consumer expectation across the six geopolitical zones from 2009-2011. The result shows that consumer confidence, current income, income expectation, expected change in the prices of food and durables, and exchange rate are the determinants of consumption in Nigeria. Surprisingly, the short run MPC is substantially larger than the long run MPC, indicative of low savings, perhaps resulting from loss of confidence in interest rate among the households.

Keywords: Nigeria, consumer confidence, expectation, macroeconomic variables, household spending, panel data