Causal relationship between gross domestic product and personal consumption expenditure of Nigeria

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1 Afrca Joural of Mahemacs ad Compuer Scece Research Vol. (8), pp , Sepember, 009 Avalable ole a hp:// 009 Academc Jourals Full Legh Research Paper Causal relaoshp bewee gross domesc produc ad persoal cosumpo expedure of Ngera Nwabueze Joy Choma Deparme of Sascs, Aba Sae Uversy, Uuru, Aba Sae, Ngera. E-mal: eeubueze@yahoo.co.uk. Acceped 3 July, 009 Ths sudy employed regresso aalyss o vesgae he casual relaoshp bewee gross domesc produc ad persoal cosumpo expedure of Ngera usg daa from A o sgfca value of was obaed as a slope coeffce dcag ha a crease gross domesc produc has o sgfca effec o he persoal cosumpo expedure of Ngera. Ths was furher evdeced by he value of he coeffce of deermao whch was oly mplyg ha he gross domesc produc oly explaed abou 3.5% of he persoal cosumpo expedure of Ngera. Key words: Causal relaoshp, coeffce of deermao, gross domesc produc, persoal cosumpo expedure, vesme, goverme spedg, cosumer prce dex, mplc prce deflaor. INTRODUCTION The mos commo measure of he amou of suff produced he whole ecoomy s ermed Gross Domesc Produc (GDP) (ECON, 006). GDP s oal currecy value of all fal goods ad servces produced a ecoomy over some me perod /year. For example U.S. GDP 005 was $1,000 rllo whle he GDP per capa (per perso) was $1 rllo/300 mllo $40,000. The U.S. GDP s by far he larges he world followed by Cha wh abou $3 rllo. U.S. GDP per capa s o he hghes. Naoal come (NI) ca be defed as come eared by a ao's czes for supplyg resources (lad, labor ad capal) o producers. I cludes compesao of employees, propreor's come, real come, corporae profs ad eres come (e eres). Expedures o goods ad servces clude Persoal Cosumpo Expedures (PCE), gross prvae domesc vesme, goverme purchases of goods ad servces, expors of goods ad servces ad mpors of goods ad servces. Persoal cosumpo expedures are spedg by households o ew goods ad servces o he excluso of ew houses (ECON, 006). The relaoshp bewee GDP ad cosumpo expedure s a mpora subjec of aalyss. I has araced cosderable eres amog ecooms ad polcy makers. The GDP accou s broke dow o cosumpo expedure, vesme, goverme spedg ad expor. O he oher had, cosumpo expedure s composed of cosumer spedg o goods ad servces whch s ofe dvded o spedg o durable goods, o durable goods ad servces. A umber of emprcal sudes have bee focused o he causal relaoshp bewee ecoomc growh ad cosumpo expedure. Keyes (1936) dscovered from hs emprcal sudes ha goverme expedure s a exogeous facor whch ca be ulzed as a polcy srume o smulae ecoomc growh. Fölser ad Herekso (1999) argued ha here s o agreeme regardg he dreco of causaly bewee ecoomc growh ad cosumpo expedure. Kweka ad Morrssey (1998) who worked o he mpac of ecoomc growh o cosumpo expedure usg Grager causaly es wh me seres daa of Tazaa, repored o evdece of mpac of GDP o cosumpo expedure of Tazaa. Earler workers had suggesed ha he reaso for he coflcg resuls was due o he dffere aure of polcal clmae ad ecoomc sysem. ours (006) o he oher had adduced ha sudy wh he employme of me seres daa some coures may produce spurous oucome. Gve all hese vewpos, quesos of eres arse whch mgh clude: wha cocluso do we have o make o Ngera regardg he causaly relaoshp bewee gross domesc produc ad

2 180 Afr. J. Mah. Compu. Sc. Res. Table 1. Esmao of he parameers of he model mllos of US dollar ($). ear I mllos of US dollar ($) Gross domesc produc () Persoal cosumpo expedures () , , , , , , , , , , ,000, ,400, ,400, ,000, s depede varable ad s depede varable. Table. Esmao of he parameers of he model mllos of Ngera Nara (). ear I mllos of Ngera Nara () Gross domesc Produc () Persoal Cosumpo expedures () ,100 6,511, ,977,700 6,785, ,83,900 8,493, ,395,000 8,931, ,837,00 8,558, ,400,600 36,05, ,375,000 44, , ,394, , ,394, ,650,000 6,708, ,000,000 68,06, ,10,000 81,994, ,510,000 76,195, ,050,000 95,966,50 s depede varable ad s depede varable. cosumpo expedure? The success mplemeg a effecve fscal polcy argeg he corol of he budge defc Ngera ad also o promoe he prvae secor so ha ca compee effcely ad effecvely he global ecoomy ress maly o he aure of he relaoshp ha exss bewee ecoomc growh ad cosumpo expedure. Therefore he causal relaoshp bewee ecoomc growh ad cosumpo expedure warras close vesgao. The emprcal evdece o hs ssue would clarfy he aure of he causal relaoshp bewee hem ad provde useful recommedaos for Ngera goverme. METHODOLOG Source of Daa Ths sudy was desged o apprase he fudameal ecoomc relaoshp bewee Gross Domesc Produc ad Persoal Cosumpo Expedure of Ngera usg me seres daa from The daa used for hs sudy were obaed from Federal Offce of Sascs ad Ceral bak of Ngera Aual repor ad saeme of accous (FOS ad CBN, 001); Ceral Iellgece Agecy (CIA) (The World fac book, 007) ad Ued Naos Sadards Naoal Accou (UNSNA, 007). The daa o Gross Domesc Produc ad Persoal Cosumpo Expedure were colleced mllos of US dollar ($) (Table 1). Usg he exchage rae hsory of Ngera for , he Gross Domesc Produc ad Persoal Cosumpo Expedure of Ngera were obaed Ngera Nara () (Table ). Regresso aalyss Gross Domesc Produc flueces persoal cosumpo expedures. As a resul, he depede varable wll be persoal cosumpo expedures ad he depede varables wll be GDP. The sudy employed he mehod of regresso aalyss o verfy he causal relaoshp bewee gross domesc produc ad cosumpo expedure of Ngera. A regresso model s a mahemacal equao ha descrbes he relaoshp bewee or more varables. A smple regresso model cludes oly varables: oe depede ad oe depede. The depede varable s he oe beg explaed ad he depede varable s he oe used o expla he varao he depede varable. Model equao Alhough regresso aalyss deals wh he depedece of oe varable o he oher, does o ecessarly mply causao. Therefore, o deec he dreco of causaly bewee ay varables, he Grager procedure has gaed a lo of populary, parly due o s smplcy (Shamm, 007). The relaoshp bewee varables a regresso aalyss s called he regresso equao or model. A regresso equao ha gves a sragh le relaoshp bewee varables s called a lear regresso model. The model s specfed as:

3 Nwabueze 181 o λ (1) s he cosumpo expedure a me, Gross domesc produc a me, s he λ s he error erm a me. o ad 1 are ercep ad slope coeffces of he regresso model. Assumg ha he expeced value of he error erm s zero, he average cosumpo expedure a me for a gve gross domesc produc s gve as: ( / ) o + E 1 () Observg all he assumpos of ordary leas squares ad mmzg he error sum of squares, he leas squares esmaors of he regresso parameer o ad 1 are gve as ˆ 0 (3) ˆ y ( ) y 1 (4) ( ) Usg equaos (3) ad (4), esmaes of he ercep ad slope coeffces were obaed for he model saed (). The sgfcace of he slope coeffce of our model was esed o acually ascera where he causal relaoshp bewee gross domesc produc ad persoal cosumpo expedure s sascally sgfca usg he es sasc ˆ S ˆ 0 cal (5) ˆ s he esmaed value of ad 0 s he hypoheszed value of whch hs sudy s equal o 0. S s he sadard error of Aferwards, a decso rule was appled o he es sasc amely. If cal > ab rejec H 0 ad accep oherwse where ab s he abulaed value of he sude s dsrbuo ad cal s he calculaed value usg (5). 95% cofdece ervals were deermed for he coeffces usg, ˆ, ˆ ± α, k S (6) k 95% cofdece. α s he abulaed value of he dsrbuo a RESULTS AND DISCUSSION The resuls of he causal relaoshp bewee Gross Expedure of Ngera were derved from equao () ad preseed below as esmaed regresso model as repored leraure (Gujara, 005). Se ( 9,158, ) ( ) (3.93) R (1.54 ) The resul of he aalyss shows ha he overall cosa expedure for Ngera s 36,000,767. Ths explas he cosumpo expedure whe here s o corbuo from he GDP. A value of was obaed for he slope coeffce whch shows a very poor explaaory power of GDP o cosumpo expedure. Ths s evdeced by he fac ha he slope coeffce s sascally very sgfca, dcag ha a creme gross domesc produc Ngera has o sgfca effec o he cosumpo expedure. Persoal cosumpo expedures as defed (Suberry, 1998) clude domesc goods ad servces purchased by dvduals, operag expeses of oprof suos servg dvduals ad he value of food, fuel, clohg, housg ad facal servces receved kd by dvduals. May local polcy makers ad admsraors are famlar wh he Cosumer Prce Idex (CPI) as a measure of flao relao o employee wage coracs ad meda repors, bu hey have had o reaso or opporuy o deal wh hs ew measure, he mplc prce deflaor (IPD) for persoal cosumpo expedures. Suberry (1998) explaed ha he IPD s a ao-wde dcaor of he average crease prces for all domesc persoal cosumpo. The IPD for persoal cosumpo expedures measures average prce chages for all domesc persoal cosumpo for he ere ao whch are revsable afer al publcao. I also eds o measure lower prce dffereals. The IPD s derved from he aoal come ad gross domesc produc (GDP). The perceage chage he mplc prce deflaor for Persoal Cosumpo Expedures ca be defed as flao. The overall mea of he cosumpo expedure remas cosa every year rrespecve of ay crease GDP. Ths s furher evdeced by he value of he coeffce of deermao whch s oly showg ha GDP oly explas abou 3.5% of oal varao cosumpo expedure Ngera. The esmaed model does o show a good f erms of R ad he slope. There s a relao bewee he depede ad he depede varable so bewee GDP ad PCEs. Shamm (007) who repored a posve ad srog relaoshp bewee GDP ad PCEs saed ha mea ha real lfe, f people ear more hey also sped more

4 18 Afr. J. Mah. Compu. Sc. Res. Table 3. Aalyss of varace able for he daa Source of Varao Due o regresso Sum of Square Degree of Freedom Mea square Error Toal x \ F rao: However, resuls ad fdgs hs sudy dcaed ha he GDP does o ecessarly crease he cosumpo expedure. The fdgs leraure showed apparely corasg vew pos (Fölser ad Herekso, 1999; Kweka ad Morrssey, 1998). Hsorcal evdece show ha resource-abuda developg coures have performed markedly worse erms of GDP developme ha resource-poor coures (Helge e al., 000). Ol booms have creased publc spedg, bu eher he poor or he fuure ( erms of spedg o healh ad educao) have beefed. Thus here seem o be glarg coradco bewee he aural abudace ad he mserable socal ad ecoomc codo mos ol rch coures. Ells (007) repored ha he varao PCE explaed hardly ay of he fuure varao sock reurs based o he R sasc value of jus There was very weak evdece ha PCE s a corary dcaor for sock reurs quarers hece. I was cocluded ha PCEs s o a leadg dcaor for he sock marke. From hese vared repors, oe ca coclude ha posve or egave relaoshp bewee GDP ad PCEs depeded o he coury/rego ad o he aalycal mehod employed (Kweka ad Morrssey, 1998). Takg GDP as a dcaor of ecoomc developme, resource abuda developg coures have performed far worse ha resource poor coures. Coures rch merals have doe worse ha o-meral resource rch coures. I hs regard oe should oe ha he resource re largely accrue o he sae meral-rch coures, whereas hs s o a lesser exe ypcal for o-meral rch coures. Helge e al. (000) repored ha coures lke Ira, Ngera, Algera, Agola ad Veezuela, have show some srkgly smlar developme pahs he wake of peroleum reveue flow despe major dffereces polcal srucure ad ecoomc, socal ad culural codos. All of hem have show a decle per capa GDP. Tes of sgfcace of he slope coeffce of he regresso parameer furher cofrmed ha here s o sgfca relaoshp bewee Gross Domesc s Produc ad cosumpo expedure of Ngera. Furher aalyss was carred ou o he sudy o apporo he oal varao o depede sources of varao (Table 3). The F rao from he Table was que small a 5% level of sgfcace showg ha he source of varao cosumpo expedure due o GDP s hghly sgfca. Much of he source of varao he causal relaoshp of PCE ad GDP was from uexplaed sochasc source called he error compoe. Corrupo ad war have major damagg effecs o ecoomc developme. Cocluso The resuls of hs sudy showed ha he effec of creasg he gross domesc produc of Ngera does o ecessarly lead o hgher cosumpo expedure. The polcy recommedaos ha could be reasoably made from hs sudy clude ha huma resource expedure should be more prorzes, assumg ecoomc growh s he umos goal for he Ngera goverme. The causal relaoshp bewee he gross domesc produc whch could measure ecoomc growh ad cosumpo expedure of Ngera seems o grow from crease cosumpo expedure o crease gross domesc produc. The Ngera Federal goverme eeds o crease vesme veores, sae ad local spedg, crease producvy, dversfy he ecoomy ad dusralze he coury o have varous cosumer goods ad servces. Ths of course wll boos cosumpo expedure, reduce uemployme, crease he labor force, crease expor ad reduce mpor as large amou of cosumpo ad vesme spedg are spe o mpored goods. As hese are doe, he ecoomy wll grow ad he geeral lvg sadard of her czes wll mprove sce ecoomc growh s of umos mporace ay coury. REFERENCES ECON (006). Measurg Macroecoomc Performace. Gross Domesc. ECON 13 Tuesday -8-06, Pp 1-1. Ells J (007). Persoal Cosumpo Expedures ad he Sock Marke Ahead of he Curve, Fölser S, Herekso M (1999). Growh ad he publc secor: A crque of he crcs, Europea J. Pol. Eco. 15: FOS ad CBN (001). Ceral Bak of Ngera, Aual Repor Gujara DN (005). Basc Ecoomercs fourh edo. Taa McGraw- Hll Pub.Compay Ld. N. Helge OB, Torlef H, Lev L (000). Pero-saes - Predaory or Developmeal? Frdjof Nase Isue ad ECON Cere for Ecoomc Aalyss Keyes JM (1936).The Geeral Theory of Employme, Ieres ad Moey. Publshed by Harcour, Brace ad Compay, ad pred he U.S.A. by he Polygraphc Compay of Amerca, New ork. Kweka C, Morrssey O (1998). Impacs of Ecoomc Growh o Cosumpo Expedures. The case of Tazaa, Tazaa. Eco. J. 15(1): Shamm F (007).The ICT evrome, facal secor ad ecoomc

5 Nwabueze 183 growh: a cross-coury aalyss. J. Eco. Sud. 34(4): Suberry T (1998). Implc Prce Deflaor for Persoal Cosumpo Expedures Referedum 47's Measure of Iflao. MRSC Publc Polcy ad Face Cosula. The World fac book (007). Ceral Iellgece Agecy publcaos. UNSNA (007). Defo of ecoomc asses UNSNA: a dscusso paper ours MZ (006). The Assocao bewee Goverme Cosumpo Expedure ad Ecoomc Growh USA. US. Eco. J. 45(): 1-16.