Isaac Scientific Publishing

Journal of Advances in Economics and Finance

Modelling the Response of Private Consumption to Income: Evidence from ECOWAS Countries

Download PDF (295.8 KB) PP. 109 - 116 Pub. Date: August 1, 2019

DOI: 10.22606/jaef.2019.43003

Author(s)

  • Yaya KEHO*
    Ecole Nationale Supérieure de Statistique et d’Economie Appliquée (ENSEA) Abidjan, 08 BP 03 Abidjan 08, Côte d’Ivoire

Abstract

This study investigates the relationship between consumption and income from the Absolute Income Hypothesis perspective for the Economic Community of West African States (ECOWAS). As a modelling strategy, we use the Common Correlated Effect Mean Group (CCEMG) estimator that deals with both slope heterogeneity and cross-sectional dependence. The results show that consumption strongly depends upon current income in all the countries, thereby providing support for the Keynesian theory of consumption. The results also reveal heterogeneity in the elasticity of consumption with respect to income. Therefore, tax reductions may be a good instrument to stimulate household consumption in ECOWAS countries.

Keywords

Consumption, GDP, absolute income hypothesis, ECOWAS

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