Determinants of Aggregate Consumption Expenditure in Nigeria

Abstract

The study examined the determinants of aggregate consumption expenditure in Nigerian. The model used in the study was derived from the Keynesian consumption function where consumption is explained by variations in income, C= f(Y). It was also specified to embrace the postulates of consumption expenditure that are not based on current income alone, but on other explanatory variables. Thus gross consumption expenditure was the dependent variable while income, interest rate, inflation rate and exchange rate were the explanatory variables. Unit root test using the Augmented Dickey Fuller test was conducted to test for stationarity among variables employed. The Johansen Co-integration test was also employed to test for long run equilibrium relationship among the variables. The study showed positive relationship between consumption expenditure and income and proved that the Nigeria consumption function conforms to Keynesian consumption model and also incorporates the idea of other well known theories as, interest rate; price level and exchange rate were significant variables explaining consumption behaviour in Nigeria. Policies to combat inflation, employment creation to increase purchasing power in the hands of more Nigerians and a check on the continuous depreciation of the naira were suggested recommendations.