—This paper analyzes the response of consumption
spending in Malaysia to the changes in income with
consideration of the recent economic downturn of 1997/1998
and 2008. Applying annual data over the period 1991-2010, the
cointegration test and the error correction model were
employed to measure the response. Marginal propensity to
consume in the short run and the long run were estimated. The
finding finds that despite extraordinary times, consumption
spending is invariant to economic downturn. It rejects
excessively volatile consumption behavior and supports a stable
consumption pattern. The marginal propensity to consume 0.67
is consistent with some findings in the literature. Wealth is one
of the significant determinants of consumption.
—Consumption, cointegration, error correction
model, financial crisis.
Y. Zarinah is with the Faculty of Economics and Administration,
University of Malaya, 50603 Kuala Lumpur, Malaysia (e-mail: zarinahy@
G. P. P. Jenny Pereira is with the Faculty of Economics and
Administration, University of Malaya, 50603 Kuala Lumpur, Malaysia
Cite:Y. Zarinah and G. P. P. Jenny Pereira, "Consumption Invariant to Economic Downturn? Evidence on the Propensity to Consume," International Journal of Trade, Economics and Finance vol.3, no.6, pp. 468-471, 2012.