ARTICLE

CHINAS CONSUMPTION FUNCTION AN EMPIRICAL TEST OF ABSOLUTE AND PERMANENT INCOME HYPOTHESIS

  1. HOME
  2. ARTICLE

10 Pages : 90-97

http://dx.doi.org/10.31703/ger.2018(III-I).10      10.31703/ger.2018(III-I).10      Published : Jun 2018

China's Consumption Function: An Empirical Test of Absolute and Permanent Income Hypothesis

Abstract

    The study investigated the empirical rationale of Absolute and Permanent Income Hypothesis (AIH) & (PIH) for China by applying the yearly data from 1970-2016. The outcomes of the research study dismissed the validity of PIH, at the same time it reinforced the soundness of AIH in the country. The aftereffects of CMMl demonstrate that any change that occurs in expected income significantly affects the innovation in real private consumption. Moreover, the share of forward-looking households is genuinely lower than backward-looking households. Under the CMM the estimated value of (1- λ) for China is 0.25, which implies that by and large 25 percent of the households set their consumption base on permanent income, albeit the rest of the families take their consumption preferences are subject to current income, notwithstanding the outcomes of the study bring up a solid dismissal of PIH for China.

    AIH, PIH, Campbell and Mankiw Model, Forward-looking Households, Backward-looking Households

    (1) Saima Liaqat
    Visiting PhD Scholar,University of Queensland, Brisbane, Australia.
    (2) Khalid Khan
    College of Economics and Management, Northeast Agricultural University (NEAU), Harbin, Heilongjiang, China.
    (3) Po Bunnika
    College of Economics and Management, NEAU, Harbin, Heilongjiang, China.
Fulltext PDF

References

  • Akekere, J., & Yousuo, P. O. J. (2012). An empirical analysis of change in income on private consumption expenditure in Nigeria from 1981 to 2010. International Journal of Academic Research in Business and Social Sciences, 2(11), 321.
  • Aruoba, S. B., & Schorfheide, F. (2011). Sticky prices versus monetary frictions: An estimation of policy trade-offs. American Economic Journal: Macroeconomics, 3(1), 60-90.
  • Amin, S.B. (2011). Causal relationship between consumption expenditure and economic growth in Bangladesh. World Journal of Social Sciences, 1(2), 158-169.
  • Campbell, J.Y. & Mankiw, N.G., (1989)
  • Friedman, M. (1947). A Theory of the Consumption Function, Princeton: Princeton University press
  • Guisan, M. C. (2004). A Comparison of Causality Tests Applied to the Bilateral Relationship between Consumption and GDP in the USA and Mexico. International Journal of Applied Econometrics and Quantitative Studies, 1(1), 115-130.
  • Hausman, J. K., & Wieland, J. F. (2014). Abenomics: preliminary analysis and outlook. Brookings Papers on Economic Activity, 2014(1), 1-63.1956
  • Hall, R.E. (1981). Intertemporal Substitution in Consumption. JournalofPoliticalEconomy, 96, pp.339-987
  • Hall, R. E. (1978). Stochastic Implication of the Life Cycle Hypothesis Theory and Evidence. Journal of Political Economy, 86, pp.971-98
  • Hsieh W.J. & Hsing, Y. (1994). Tests of Nonlinear Consumption Function: the Case of Korea, Taiwan, Thailand and India,
  • Keynes, J.M., (1936) The General Theory of Employment Interest and Money, London Macmillan, 1936.
  • Khan, K. Ali M, & Nishat, M. (2010). Estimation of Consumption function under the PIH: Evidence from Pakistan. Kashmir Economic Review, 19 (1): 91-96
  • Khan, K. and Manzoor, H. Memon. Che, (2012). The Hall's Permanent Income Hypothesis: A Case Study of Pakistan. Asian Economic and Financial Review, 2(4): 518-522
  • Khoon, L. G. & Richard, D. (2002). Modeling New Zealand Consumption Expenditure over the 1990s. New Zealand Treasury, Working Paper 02/19
  • Kuznets, S., (1946) National product since 1869 (assisted by L. Epsteion & E. Zanks), New York, National Bureau of economics research, (1946)
  • Khan, K., Anwar, S., Ahmed, M., & Kamal, M. A. (2015). Estimation of Consumption Functions: The Case of Bangladesh, India, Nepal, Pakistan and Sri Lanka. Pakistan Business Review, 17(1), 113-124.
  • Khan, K., Chen, F. E. I., Kamal, M. A., & Shaikh, S. A. (2015). Determinants of Consumption Function. Case of China and G7 Countries. International Journal of Economics and Empirical Research, 3(4), 202-210.
  • Khan, K. (2015). Real Private Consumption Modeling of Pakistan. VFAST Transactions on Education and Social Sciences, 6(2).
  • Khan, K., Chen, F. E. I., & Ashraf, N. (2015). Impact of Government Spending on Private Consumption Using ARDL Approach. Asian Economic and Financial Review, 5(2), 239-248.
  • Manitsaris, A. (2006). Estimating the European Union consumption function under the permanent income hypothesis. International Research Journal of Finance and Economics, 2(3), 1450-2887
  • Mishra, P. K. (2011). Dynamics of the relationship between real consumption expenditure and economic growth in India. Indian Journal of Economics & Business, 10(4), 553-563.
  • Mallik, L., & Pradhan, K. C. (2012). Per capita consumption expenditure and personal disposal income in India-An econometric analysis. Int. J. Eco. Res, 3(2), 96-102.
  • Nezhad Zarra-.M, Saeidi, Naser, S., and Mansoury, Amin, S, (2011). Estimation of Nonlinear Marginal Propensity to Consume in Iran. European Journal of Economics, Finance and Administrative Sciences, 41(2011): 65-72
  • Ofwona, A. C. (2013). An estimation of the consumption function for Kenya using Keynes' Absolute Income Hypothesis for the period 1992-2011. Journal of Emerging Trends in Economics and Management Sciences, 4(1), 103-105.
  • Parker, J. A. (1999). The reaction of household consumption to predictable changes in social security taxes. American Economic Review, 89(4), 959-973.
  • Rao, B. Bhaskara' (2005). Testing Hall's permanent income hypothesis for a developing country: the case of Fiji', Applied Economics Letters,12:4,245 - 248
  • Zuchlke, Thmas, W. & Payne, James E., (1989).

Cite this article

APA

    APA : Liaqat, S., Khan, K., & Bunnika, P. (2018). China's Consumption Function: An Empirical Test of Absolute and Permanent Income Hypothesis. Global Economics Review, III(I), 90-97. https://doi.org/10.31703/ger.2018(III-I).10

CHICAGO

    CHICAGO : Liaqat, Saima, Khalid Khan, and Po Bunnika. 2018. "China's Consumption Function: An Empirical Test of Absolute and Permanent Income Hypothesis." Global Economics Review, III (I): 90-97 doi: 10.31703/ger.2018(III-I).10

HARVARD

    HARVARD : LIAQAT, S., KHAN, K. & BUNNIKA, P. 2018. China's Consumption Function: An Empirical Test of Absolute and Permanent Income Hypothesis. Global Economics Review, III, 90-97.

MHRA

    MHRA : Liaqat, Saima, Khalid Khan, and Po Bunnika. 2018. "China's Consumption Function: An Empirical Test of Absolute and Permanent Income Hypothesis." Global Economics Review, III: 90-97

MLA

    MLA : Liaqat, Saima, Khalid Khan, and Po Bunnika. "China's Consumption Function: An Empirical Test of Absolute and Permanent Income Hypothesis." Global Economics Review, III.I (2018): 90-97 Print.

OXFORD

    OXFORD : Liaqat, Saima, Khan, Khalid, and Bunnika, Po (2018), "China's Consumption Function: An Empirical Test of Absolute and Permanent Income Hypothesis", Global Economics Review, III (I), 90-97

TURABIAN

    TURABIAN : Liaqat, Saima, Khalid Khan, and Po Bunnika. "China's Consumption Function: An Empirical Test of Absolute and Permanent Income Hypothesis." Global Economics Review III, no. I (2018): 90-97. https://doi.org/10.31703/ger.2018(III-I).10