Consumption Expenditure Growth Research Articles

Simulating the Impact of Fuel Prices Rising and Direct Cash Assistance Compensation (BLT BBM) on Poverty in Indonesia

Crude oil prices have become volatile as geopolitical conflicts that occur in oil-exporting countries make the Indonesian government have to increase fuel prices and plan to provide cash transfers as compensation. This study analyzes the impact of fuel price rising and the direct cash assistance compensation program/Bantuan Langsung Tunai (BLT BBM) on poverty using micro data simulation. Poverty simulation is generated by modifying the poverty line (GK) and expenditure by utilizing leading indicators such as commodities inflation, household consumption expenditure growth, and population growth. The simulation results show that the presence of compensation can reduce the poverty rate compared to the absence of compensation. Without compensation, the poverty rate in September 2022 is predicted to be 10.36 percent (0.82 percent higher than in March 2022), while under the government's scheme where compensation is given to households receiving the Family Hope Program (PKH)/Non-Cash Food Assistance (BPNT), poverty is predicted to be 9.56 percent (0.02 percent higher than in March 2022). Exclusion error in the program of 55.35 percent in the lowest decile is an obstacle in poverty alleviation. Improvement and updating of the database of program recipients is needed so that the program can be more targeted to reach the poor.

Poverty dynamics for Ghana during 2005/06–2016/17: An investigation using synthetic panels

Ghana has consistently kept its poverty rate lower than the regional average over the past 25 years, but this positive trend has slowed down recently. Without actual panel data, it would be next to impossible to probe into the dynamic patterns beneath this trend. We offer the first study that examines the dynamics of overall, moderate, and extreme poverty in Ghana during 2005/06–2016/17, addressing the lack of actual panel data by constructing synthetic panel data from three nationally representative cross-sectional rounds of the Ghana Living Standards Surveys (GLSSs).We present a well-defined decomposition framework, which allows us to examine a rich profile of the dynamics among different population groups. Beyond poverty analysis, we further investigate the dynamics of the full consumption expenditure distribution. Although we find considerable conditional chronic (extreme) poverty rates hovering around 50–60%, there was more upward mobility than downward mobility during this period. Poor households were also more likely to have stronger consumption expenditure growth. The findings suggest that factors such as educational attainment, female household headship, urban residence, and nonagricultural work are positively correlated with poverty reduction. Compared to all other correlates, educational attainment appears to be the most effective in pushing households out of poverty and keeping them from falling into poverty. These results contribute to the growing literature on poverty dynamics in developing countries in general and provide new and relevant inputs for policy advice in Ghana in particular, especially since policies that address chronic poverty typically differ from those that tackle transient poverty.

Permanent inequality versus earnings instability and transmission of income shocks to consumption expenditure in India

The economic inequality in India has increased in the past years, and this increase is related to the changes in the covariance structure. Using the CMIE data for the 18 waves, this paper deals with the dynamic structure of earnings in India for the period of six years (2014–2019) by decomposing the covariance structures of earnings into the permanent and transitory/temporary components. For this, we have used eight different models to examine the earnings dynamics. The results based on these eight different models are different depending upon the specification of the model used. Nevertheless, all the models have some common characteristics. They show that both permanent and transitory components are significant in determining income inequality. The permanent component dominates the temporary component for most of the considered period, which means that the labour market is rigid. The individuals’ starting point determines their lifetime earning profile. It also implies that low-paid individuals will see lower incomes throughout their life. This paper further examines the transmission of income shocks to consumption, based on the association at lags of unexplained income and consumption expenditure growth. The covariance gives information about the effect of income shocks on expenditure if the measurement errors in income and measurement errors in expenditure are uncorrelated (orthogonal). Results show the covariance increases initially, reaches its peak in December 2016, then decreases and becomes flat.

Comparative investigation of the growth-poverty-inequality trilemma in Sub-Saharan Africa and Latin American and Caribbean Countries

To “end poverty in all its forms everywhere” and “reduce inequality within and among countries”, this study aligns with the 2030 Sustainable Development Goals 1 and 10. It uniquely contributes to the growth-poverty-inequality discourse by using per capita consumption expenditure growth (poverty), Gini index (inequality) and GDP growth (economic growth). It is a comparative analysis of 58 Sub-Saharan Africa (SSA) and Latin American (LAC) countries (from 2000 to 2015) to determine whether economic growth reduces the incidence of poverty and if its interaction with income inequality enhances or alters its impact on poverty. Consistent findings from a multi-analytical approach using pooled ordinary least squares, fixed effects and system GMM reveal that: (1) economic growth exhibit poverty-reduction properties; (2) the growth rate of inequality intensifies poverty, (3) inequality aggravates the impact of growth on poverty, and (4) the growth-poverty-inequality trilemma differs across income groups and regional samples. Furthermore, this study submits that the interaction of income inequality dampens the positive impact of economic growth on the incidence of poverty and supports the argument that the extent of inequality lessens the effect of inclusiveness. Hence, income inequality is a crucial determinant of poverty. Policy implications are discussed.

Does Economic Growth Contribute to Poverty Reduction? An Empirical Analysis Evidence from Rwanda

This study empirically analyzes whether economic growth contributed to poverty reduction in Rwanda over the period of 1980-2016. The study applied the Autoregressive - Distribution Lag bounds approach to testing for cointegration, as well Toda and Yamamoto (TY) Granger causality was used in testing for the directional causality among the variables in the study. The Autoregressive - Distribution Lag bounds test results confirm the cointegration between Household final consumption expenditure, Arable land growth rate (hectares), Gross capital formation growth rate (% of GDP), Government final consumption expenditure growth rate (% of GDP) and Service value-added growth rate, when the Household final consumption expenditure, Arable land growth rate and Gross capital formation growth rate are used as dependent variable. Additional, the results from Toda and Yamamoto Granger causality confirms a no evidence of causality association linking the poverty reduction to economic growth and vice versa while considering log Household final consumption expenditure and Arable land growth rate as dependent variables. This means that the neutrality hypothesis grips for Rwanda in the period covered by the study. Furthermore, the study finds out a proof of unidirectional causality running from Gross capital formation growth rate to government final consumption expenditure growth rate, as well as unidirectional causality running from Arable land growth rate to Government final consumption expenditure growth rate and Service value-added growth to Government final consumption expenditure growth rate. The study findings suggested that the government should adopt policy?s objective which is focusing on poverty reduction and economic growth.

Debt and Household Consumption Responses

Norwegian households’ levels of housing wealth have since the banking crisis of the 90s become an ever more dominant part of households’ portfolios. Low interest rates and easy access to mortgages have contributed to both increasing house prices and the corresponding increase in household debt. A potential concern for policy makers is how these high debt levels will affect household consumption were the economy to experience a sudden shock, in form of higher unemployment, rising interest rates, falling house prices or a combination of the three. This memo provides an overview of the theoretical implications and the empirical literature on the effects of such shocks on consumption, with an emphasis on heterogeneous responses. We use Norwegian register data on income and wealth to impute measures of consumption for the population and explore differences in consumption rates to gauge the potential impact of such shocks in Norway. We study the role of debt for consumption and find support for the hypothesis that consumption expenditure growth is lower among households with high debt. Much of the leveling off in consumption growth after the crisis reflects a regular response by highly indebted households. Still, a somewhat stronger relationship after the crisis shows that precautionary savings may have played a role.

Study on the Fluctuation of Purchasing Power Parity

This paper tests the effect of per capita income, exchange rate, foreign direct investment inflows, net trade condition index and the final consumption expenditure growth rate on the fluctuation of purchasing power parity basing on panel fixed effects model during the period of 2000-2013 of 62 countries (religions). Empirical results show that the fluctuation of per capita income and exchange rate are the key factors to explain the fluctuation of purchasing power parity, however, purchasing power parity (PPP) fluctuation is influenced by the five variables has some differences in terms of magnitude and direction between different economies. The effect of the foreign investment on purchasing power parity is negative in low income economies, but other economies are the opposite, at the same time, the estimated coefficient of high income is lower than upper & middle income economies. The growth of final consumption expenditure is helpful to improve the purchasing power parity of low income and high income economies. It is surprising that the increase in per capita income will reduce the purchasing power of some developed economies. In China, purchasing power parity will continue a growth trend in future.

Variable Reduction and Variable Selection Methods Using Small, Medium and Large Datasets: A Forecast Comparison for the PEEIs

This paper is concerned with the forecasting performance of variable reduction and variable selection methods using medium and large datasets. The variable reduction methods include Principal Components, Partial Least Squares and Bayesian Shrinkage Regression. The variable selection methods choose the appropriate predictors by minimising an information criterion. We use heuristic optimisation algorithms that are computationally feasible and include the Genetic Algorithm, the Simulated Annealing, the Sequential Testing and the MC3. The medium sets are subsets of the original dataset and are created using: (i) the best representative (most correlated) variable in each category and (ii) estimates of the exponent of cross-sectional dependence introduced recently by Bailey, Kapetanios and Pesaran (2012). We assess the forecasting performance of the above methods in forecasting four principal European economic indicators for the Euro Area economy. These are the quarterly GDP growth, the quarterly final consumption expenditure growth, the monthly industrial production growth and the monthly inflation. Our empirical exercise suggests that smaller datasets highly improve the forecasting performance of variable selection models and slightly enhance the variable reduction models.

Cross-Sectional PEG Ratios, Market Equity Premium, and Macroeconomic Activity

This paper exploits information contained in cross-sectional PEG ratios to extract estimates of the market's expectations for aggregate returns and economic fundamentals. By combining the loglinear present-valuation model and the Capital Asset Pricing Model (CAPM) logic, we establish a theoretic link between PEG ratios and expected returns of stocks. Using this theoretic link, we construct one proxy for aggregate market equity premium and one proxy for macroeconomic fundamentals. The equity premium proxy outperforms alternative predictors and has considerable power in forecasting future market returns over the period of May 1983 to December 2009. The equity premium proxy is also able to forecast future macroeconomic activity such as nonfarm payroll growth, personal consumption expenditure growth, nondurable consumption growth, inflation, and unemployment rate. The fundamentals proxy is highly correlated with unemployment rates both concurrently and intertemporally. The results are generally robust across subsample and to various econometric methods for standard-error adjustments. Our study suggests that the choice of cross-section data is critical to information extraction and that the CAPM remains a vital theoretic tool to guide empirical work.

Does the Nonfarm Economy Offer Pathways for Upward Mobility? Evidence from a Panel Data Study in Ethiopia

Summary Empirical studies across many developing countries routinely document a positive correlation between participation in rural nonfarm employment and households’ wealth or income. This paper explores whether nonfarm employment leads to higher consumption expenditure growth in Ethiopia. We find that: (1) households’ consumption expenditure growth is positively correlated with the initial share of nonfarm income; (2) the growth elasticity of nonfarm income share is higher for wealthier households; and (3) the main source of growth for nonfarm participants comes from the higher rates of return participants enjoy on their human and physical capital.

Does Nonfarm Economy Offer Pathways for Upward Mobility? Evidence from a Panel Data Study in Ethiopia

Several empirical studies across developing countries document a positive correlation between participation in rural nonfarm employment and households’ wealth or income status. However, the direction of causality is far from obvious. This paper explores whether nonfarm employment leads to higher consumption expenditure growth in Ethiopia. We find that; 1) Households’ consumption expenditure growth is positively correlated with the initial share of nonfarm income. 2) The growth elasticity of nonfarm income share is higher for wealthier households; and 3) the source of growth for nonfarm participants lies in the higher rates of return participants enjoy on their human and physical capital.

Could business cycles and economic crises smooth out at a reasonable cost?

PurposeThe purpose of this paper is to investigate the effect of macroeconomic factors in income growth, as defined by IS‐LM, and the relation between these factors and economic cycles. More precisely, the paper aims to investigate how the demand and supply factors affect income growth, while the relation between these factors and economic cycles is also examined.Design/methodology/approachThe sample under examination is the annual US data for 1928‐2007, using the official data as released in the US Bureau of Economic Analysis, while for the crises the used data have been provided by the National Bureau of Economic Research, Graduate Center of the City University of New York. The Business Cycles were examined, using the methodology developed by the National Bureau of Economic Research, Graduate Center of the City University of New York.FindingsThe research findings imply that government consumption expenditure growth is the most important factor that affects Gross Domestic Product growth positively. A change of 10 percent in Government consumption leads to 1.65 percent Gross Domestic Product growth. Also, the duration of crises is affected by lowering interest rates, while being also affected by government and personal consumption. Overall, the empirical findings of the study indicate that the role of private investments for Gross Domestic Product growth may be overrated among policy makers, given the low contribution of this factor to Gross Domestic Product growth.Research limitations/implicationsThe model used has some limitations. First, it does not examine the effect of a policy over Gross Domestic Product growth in longer time‐spans. Second, it does not investigate factor inter‐reactions. It could also be argued that other factors that would stimulate growth or affect crisis are not accounted for, such as wars, tax policies, international trade and population growth. Finally, the model investigates only the US economy; therefore, it could be argued that the findings may not coincide with findings from other economies.Originality/valueThe paper contributes to the economics literature by adding a further insight into the possible mix of policy that could be followed by regulatory authorities and governments for both the boost of economy and the finalization of economic crises.