Income and Household Consumption Expenditure in Nigeria (1986–2020)

Abstract

The correlation between household consumption expenditure and income in Nigeria was examined using annual time series data (1986–2020). The objectives of the study were achieved using some econometrics tools like the error correction model, the Johansen co-integration test, and the Granger causality test. There is a long-run relationship between income and household consumption expenditure, as revealed by the Johansen co-integration test. The errors that arose in the short run were corrected in the long run using the error correction model. There is a direct and significant relationship between household consumption expenditure and income, while other variables, except inflation, exhibit the same relationship. Inflation shows an indirect relationship. Since there was a long-term relationship between household consumption expenditure and income, the study recommended that the government enhance its welfare activities to improve the citizens’ ability to buy goods and services. The interest rate should be reduced to encourage both potential and existing investors. The monetary authorities should embark on policies that will ensure a reduction in inflation rates and also ensure price stability. This would increase the value of each household's income and lead to an increase in household consumption.