Does More Consumption Promote Real GDP Growth?

Shu‐Yi Liao, Lan‐Hsun Wang and Mao‐Lung Huang

Scottish Journal of Political Economy, 2019, vol. 66, issue 3, 384-403

Abstract: This paper employs Hansen's (1999) panel threshold regression model [Journal of Econometrics 39 (1999) 345–68] based on a time series dataset of 109 countries from 1960 to 2007 to investigate the threshold relationship between the change in real GDP per capita and the consumption size (consumption‐income ratio, APC). The results show that the consumption level should not exceed the 49.68% threshold of real GDP per capita for each country regardless of the income level. Also, the relationship between the change in real GDP per capita and the consumption size seems to have ‘Armey curve’ or ‘inverted‐U shape’ characteristic. In order to promote real GDP growth, our results suggest that the high‐income, low‐APC countries should encourage more consumption while the low‐income, high‐APC countries should encourage more saving.

Date: 2019
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https://doi.org/10.1111/sjpe.12189

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