Empirical Analysis of Private Consumption in Lesotho: An ARDL Bound Test Approach

Abstract

The study empirically analyzes private consumption in Lesotho over the period 1982-2015 by employing an Autoregressive Distributed Lag bound test approach to cointegration. The results show that private consumption is positively influenced by the level of national disposable income in the short run and long run. The Marginal Propensity to Consume is highly significant and is less than 1. This proves the Keynesian consumption theory in Lesotho. The research findings reveal that increased government expenditure crowds out private consumption in the short run and long run. A growth in the level of inflation has no effect on private consumption. An expansion in the rate on deposits positively affects private consumption in the short run. The policy recommendation given the results of the study is that the government of Lesotho should implement initiatives aimed at increasing employment as well as private sector development as espoused in the country’s National Strategic Development Plan.