Sensitivity of Consumption to Current Income in Developıng Countries: An Empirical Reinvestigation of Absolute Income Hypothesis

Year 2018, Volume: 27 Issue: 1, 48 - 62, 15.04.2018

İpek Tekin

Abstract

The main purpose of this
study is to estimate the Keynesian Absolute Income Hypothesis using panel data from
developing countries classified by income groups and regions. In accordance
with this purpose, fixed and random effects are used as estimators. The results
suggest that current income level is a significant determinant of current consumption
expenditures which means that Keynesian consumption function is still valid for
developing countries. Besides, marginal and average propensities to consume are
smaller than 1 as expected and decreasing from low towards upper-middle income
countries. Regionally, the highest marginal and average propensities to consume
are estimated for Africa region as expected.

Keywords

Developing Countries, Keynes, Absolute İncome, Marginal Propensity To Consume, Panel Data

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