Determinants of Aggregate Consumption: A Comparative Analysis of China and G7 Countries

Abstract

The study aims to estimate the consumption function for China and G7 countries, shedding light on the key determinants of aggregate consumption in both the short and long run. Utilizing the Autoregressive Distributed Lag (ARDL) approach, the research examines the influence of various factors on aggregate private consumption. Findings from the study underscore the significance of Gross Domestic Product (GDP) and wealth as primary drivers of aggregate consumption across the sampled countries. Both in the short and long run, variations in GDP and wealth exhibit a notable impact on consumption patterns, highlighting their central role in shaping overall consumption behavior. Additionally, the study reveals a noteworthy relationship between real interest rates and aggregate private consumption. Contrary to expectations, real interest rates demonstrate a negative effect on consumption levels in both the short and long term, with the exception of Canada. This suggests that higher real interest rates may deter consumption expenditure, posing implications for monetary policy and economic management strategies. Moreover, the analysis highlights the influence of unemployment rates on aggregate consumption. Across all cases examined, unemployment rates exhibit a negative impact on consumption levels, underscoring the adverse consequences of unemployment on household spending and economic activity. This underscores the importance of addressing unemployment through targeted policy measures to stimulate consumption and promote economic growth. Overall, the study provides valuable insights into the determinants of consumption behavior in China and G7 countries, offering implications for policymakers and stakeholders involved in economic planning and decision-making. By understanding the factors driving aggregate consumption, policymakers can formulate more effective policies aimed at fostering sustainable economic growth and stability.