Consumption Behaviour in Zambia: The Link to Poverty Alleviation?

K. Ludi: consumption behaviour in Zambia

The actual coefficients for the regression of equation (1) can be found in table 2.

Table 2: Regression results of the cointegration equation (dependent variable: LN_CONS_ZK)

Sample (adjusted): 1971 2001 Included observations: 31 after adjustments
Variable	Coefficient	Std. Error	t-Statistic	Consistent with Expectations?	Interpretation⁸
LN_GDP_ZK	0.999958	0.001639	610.0092	Yes	An increase in national income will increase PCE. The effect is much larger than that of the other independent variables.
R_LENDRATE	-0.002285	0.000585	-3.903330	Yes	An increase in short-term lending rates will increase the costs of consumption, and thus decrease PCE.
DUM_92	-0.309545	0.038157	-8.112476	Yes	The dramatic decline in PCE in 1992, will have an overall decreasing effect on the aggregate PCE function.
R-squared 0.713131 Adjusted R-squared 0.692640

An Augmented Dickey Fuller (ADF) unit root test was performed on the residuals of the
cointegration equation, and it was concluded that the residuals are indeed stationary.⁹

4.2. The Error Correction Model (ECM)

The ECM represents the short-term relationship between the data series, and is based on
the proposition that a proportion of any disequilibrium from one period can be corrected
in the next period. Long-run effects are included in the short-run equation via the lagged
residuals of the cointegrating equation (res_coint).

Attempts to estimate equation (2) as the ideal short-term situation were statistically
fruitless. Thus, other short-run factors were included to be statistically successful and

Due to the non-stationarity of the variables, the magnitudes of the coefficients cannot be
stringently evaluated, and the variables may not be statistically evaluated.

See Appendix B for the unit root tests of the cointegrating residuals.

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