Consumption Behaviour in Zambia: The Link to Poverty Alleviation?

K. Ludi: consumption behaviour in Zambia

are inaccurate and biased. Thus, the ECM is used via its residuals to adjust the long-run
coefficients and their corresponding t-statistics.

The residuals from the ECM are regressed on the variables included in the long-run
equation multiplied by the negative coefficient of the residuals from the cointegrating
equation retrieved from the ECM. The results of the Engle-Yoo regression are shown in
table 5.

Table 5: Results of third-step Engle-Yoo regression (dependent variable: RES_ECM)

The values from this regression are used to adjust the long-run coefficients, as shown in
table 6.

Table 6: Adjustment of long-run cointegrating coefficients and t-statistics

Now that the cointegrating coefficients have been adjusted, they may be interpreted with
confidence. Since the t-statistics are statistically significant at a 1 per cent level of
significance,¹² it can be claimed that real short-term lending rates and national output
influence PCE in the long run. Economically, the coefficient of LN_GDP_ZK represents
the marginal propensity to consume,¹³ and is thus a very interesting result, due to the fact
that it is larger than 1. This implies that Zambians are spending more on consumption that
what they effectively earn. This result however should not be interpreted too stringently,

Calculation of the adjusted t-statistic: (adjusted coefficient / std. error).

The t-statistics are larger than the calculated critical value of 2.75 (df = 31).
Calculated as the first order derivate of PCE with respect to income.

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