K. Ludi: consumption behaviour in Zambia
13
since total GDP was used as a proxy for disposable household income - which will
obviously lead to slightly misleading results.
Using the adjusted coefficients above, it is possible to interpret the elasticities of PCE, as
is done in table 7.
Table 7: Elasticities of private consumption expenditure to income and short-term lending rates
Variable |
Elasticity |
Interpretation |
LN_GDP_ZK |
1.000211 |
I An increase in income of 10 per cent will increase |
R_LENDRATE |
-0.002053 |
i An increase in interest rates of 5 per cent will decrease |
5. Analysis of the Results
It is clear that the marginal propensity to consume (MPC) of 1 in Zambia is extremely
high. Approximately all additional income received by individuals is spent on
consumption. This has a very significant impact on savings, as evidently Zambia suffers
from almost zero private savings. This MPC figure is higher than the APC for the year
2001 (0.66). Again this represents a very worrying structural phenomenon, as there are no
stabilising effects in the economy.
2001 levels of the independent variables (R_LENDRATE and LN_GDP_ZK) of equation
(1), the long-run equation, can be substituted into the adjusted cointegration equation
(table 6), so as to estimate a value for PCE, LN _ CONS _ ZK , to be compared to the
current poverty levels in Zambia. Table 8 shows the results of this approach (all figures in
millions of Zambian Kwatchas).
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