Investigating the stability of private comsumption in Namibia
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Date
2009
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Abstract
Private consumption is the component of aggregate demand which has been regarded to be stable relative to the other components. However, the current study shows that this has not been the case for Namibia during the period 1980 to 2006. Namibia.s political independence in 1990 did not only bring changes of government, but also structural changes in various parameters in the Namibian economy. Therefore, the main objective of this study is to investigate the stability of private consumption in Namibia over the period 1980 to 2006. The study applies the Augmented Dickey-Fuller test to test for stationarity of variables in the model and to determine the long run and short run models, using the Engle-Granger process of cointegration. The results show that there is cointegration between private consumption and its main determinants, namely disposable income, and average lending rate. The result from Quandt Likelihood Ratio test (QLR) and Chow test identifies at least one structural break in the private consumption model at point 1990. In addition, as the sample size increases the parameters in the private consumption model differs significantly, implying a significant difference between the marginal propensity to consume before and after independence, respectively. Furthermore, private consumption is mainly determined by current disposable income. The study reveals that households in Namibia are sensitive to changes in lending rates, while inflation and drought are insignificant in the long run. The insignificance of inflation in this study remains an empirical puzzle, which can be uncovered only by further research
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a theses submitted in partial fulfilment of the requirements for the Degree of Master of Science in Economics
Keywords
Consumption Namibia, Namibia economic conditions, Saving and investment