Consumption Behaviour in Zambia: The Link to Poverty Alleviation?



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
I PCE by 10 per cent.

R_LENDRATE

-0.002053

i An increase in interest rates of 5 per cent will decrease
j PCE by 0.01 per cent.

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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