DETERMINANTS OF AGGREGATE CONSUMPTION SPENDING IN NIGERIA

Abstract

This study investigated the major determinants of aggregate consumption spending in Nigeria using quarterly time series data spanning the period of 1981 – 2014. Auto – regressive distributive lag Error correction model (ARDL – ECM) was employed for the analysis, while Engel Granger causality test was used to determine the direction of causality between aggregate consumption spending and its determinants. The result showed that disposal income, financial assets, credit facilities and government expenditure are the major determinants of consumption spending in the short run while disposable income, financial assets, government expenditure and interest rate are the major determinants of consumption in the long run. The speed of adjustment suggested that it will take about five quartersfor any deviation in the consumption function to converge to equilibrium. The bounds co-integration test indicated that there is a long run relationship between consumption and its determinants. Engel Granger causality test shows that there is a bi-directional causality between disposable income and consumption spending in Nigeria. In view of this, the study recommended that government should provide enabling environment that will encourage savings and hence increase financial assets as this will subsequently increase consumption in the long run and also maintain a sustainable minimum wage policy which will increase consumption both in the short run and long run.