• ISSN: 2010-023X
    • Frequency: Bimonthly
    • DOI: 10.18178/IJTEF
    • Editor-in-Chief: Prof.Tung-Zong (Donald) Chang
    • Executive Editor: Ms. Cherry L. Chen
    • Abstracting/ Indexing: Engineering & Technology Digital Library, ProQuest, Crossref, Electronic Journals Library, DOAJ , EBSCO, and Ulrich's Periodicals Directory
    • E-mail: ijtef@ejournal.net
IJTEF 2012 Vol.3(6): 468-471 ISSN: 2010-023X
DOI: 10.7763/IJTEF.2012.V3.247

Consumption Invariant to Economic Downturn? Evidence on the Propensity to Consume

Y. Zarinah and G. P. P. Jenny Pereira
Abstract—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.

Index Terms—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@ um.edu.my).
G. P. P. Jenny Pereira is with the Faculty of Economics and Administration, University of Malaya, 50603 Kuala Lumpur, Malaysia (e-mail: jennypereira28@hotmail.com).

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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.

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