An Analysis of the Determinants of Household Consumption Expenditure and Poverty in Indonesia

Abstract

The main question of the research that is examined in the research is what the determinants of household consumption expenditure and poverty in Indonesia are. For this purpose, six key variables were selected which includes, household consumption expenditure, level of gross national income (GNI), level of population, lending interest rate, unemployment rate and also global financial crises. However, paper specifically attempted to conduct data analysis on the Indonesia; hence data of Indonesia was collected from World Bank Data centre. Data for the Indonesia was available for the period of 1990 to 2019. To determine stationarity of the data, Augmented Dickey-fuller (ADF) test was conducted. The ADF revealed that data was non-stationary and to resolve the issue of unit root, second difference of the variables resolved the issue and tests were conducted on second difference. Furthermore, instead of using the ordinary least square (OLS) regression, autoregressive distrusted lag model (ARDL) was preferred. The bound test reveals that there is long-run effect means cointegration present among the variable; hence the household consumption expenditure could be used to predict or estimate the household consumption and poverty in long-run. Meanwhile, ARDL results has suggested that there is no short-run effect of any of the regressors on the regressand household consumption expenditure and poverty.