Household Consumption Analysis in Rawalpindi

Household uptake Analysis in RawalpindiImran Ejaz1. IntroductionConsumption and proceeds generate economic activities in an economy. Consumption and production go side by side. Consumption creates demand for further production of goods and services. It is non wrong to say that if on that point is no uptake on that point is no economic activity in the country. Only the final purchase of goods and services is known as utilisation, and every commercial activity is for production purpose. Consumption can be expressed in dickens ways. In nominal, means the m wizy spent on the purchase of goods and services, and in real, means the derivation of the utility of goods and services for the satisfaction of wants e.g. using up of consumer goods both durables and non durables. Consumption amounts to the biggest part of Pakistan which accounts for 81% of Gross Domestic product in 2013 fit in to World Bank statistics.Consumption is also termed as the total spending on goods and services in an economy. The brea turn offg in function is used to estimate the relation of total inhalation in an economy. In social sciences, the custom function is a used to express trend of consumer spending as income of tribe uprising and f any(a)ing. Consumption function provides an excellent illustration of a typical sequence in the development of the country and standard of financial support of the people. Bentham (1748) also considered production and its utilization as important determinants of an economy. The process of role was vital for any system to sustain. Keynes (1936) addresses the theory of purpose, which showed the relationship between consumer income and consumption. According to Keynes, People on average, have demeanour that when their income increase, they spend much, but not as much as their income raises. It is made up of autonomous consumption that was not influenced by current income and induced consumption that was influenced by the economys income level .Chow et al. (2001) did a research ab away the Chinese economy and Chinese entrepreneurs who had grown along with the Chinese economy. This research idea compares and contrasts the consumption habits of low and luxuriously income business class and concluded that small businesses incomes are transitory and more unstable hence their consumption is less and they pass to save more on the other hand entrepreneurs who earn more and largely spend on meals, moving from one place to other, private stiff education and expensive items as their incomes were permanent and stable over a period of time. Socio-demographic factors, geographic locations of business firm have significant effects on the tastes and preferences. Similarly, assembly and socializing activities of consumers that were carried knocked out(p) are the second largest expense in their budgets as they need a lot of networking to succeed the business. But low income class spends a larger amount of their income on health is sues, education of their masses.Tai and Tam (1997) discussed the consumption demeanor of females that was changing due to thedifferent socio economic factors such as delayed marriage, smaller family size and single parentshave lead to changing dynamics of consumer market as a result the consumer preference werechanging and consumption pattern of the families.Siddiquie (1982) analyzed the consumption patterns establish on the Engle law in terms of income, household size and number of earners. The study showed that the consumption of fare and non-food items was potently affected by the changes in total consumptions and size of households.Consumption patterns in Pakistan have been estimated by Burki (1997) using time series info.By using nigh Ideal Demand System (AIDS) technique and information from 1972-1992 there was an exogenous growth in non durable food items demand irrespective of the movements in their termss and growth. subscribe to focused that the policy makers shoul d focus on own price elasticity to predict impact of taxes.This study go away be certain on the pedestal of Household Consumption in Rawalpindi. The study will include both ill-tempered-sectional and time series data of consumer behavior. Questionnaire will also be unquestionable to address the study beside secondary sources. In this study econometric model will be developed by taking income, age, family size, consumer price index as independent variable and household consumption as dependent variable. outlay on food items will be used as a substitute variable.1.1 Objective of the studyThe objectives of the study are as followsTo analyze the significance of demographic factors (family size, age) on household consumption expenditure in Rawalpindi.To study empirically the impact of economic factors (income, consumer price index and household consumption expenditure in Rawalpindi)1.2Significance of the studyConsumption is the sole cause and biggest reason due to which all econo mic activities begins ranging from hiring of services of factors, investing money, constructing factory or building and many more. As if there is no consumption in any society there is no need for activities of any type ranging from running a business or employing somewhere in any capacity. In short it is the consumption so that economies lively exist otherwise not.Consumption is an important function of income but there are many other factors that influence theconsumption pattern there are incidence when two households with same income level may havedifferent consumption pattern due to demeanorstyle, preference and the stage of life bicycle they are in as ahousehold greatly affects the consumption patterns. All these researches try to explore the behaviorpatterns that are crucial for molding the consumption pattern all these researches have addeddifferent key reasons and not a single research as been able to come up with any viridity behaviortraits in the different societies of the world this phenomena indicate that the consumption patternschanging according to society the house hold resides in.Income is the main component on which the consumption depends. The study will incorporate the causal relationship between household consumption to income and household consumption to consumer price index which is the important and new in this study as compared to the work done earlier. This study will be a birds eye view nearly every citizen consumption pattern which is affected by macro economic variables and demographic factors.Review of LiteratureThomas (1993). In this paper he tried to find out whether all household members share same preferences or they were dictated by any one member of the household. They came to a conclusion that when income was in hands of females shares of expenditure increases towards housing, education, health, household services and recreation when males were given the budget they tend to spend excess on health, household service and r ecreation. Education was considered intervening variable for earning hence increase in consumption, so they excluded education from demand function and include it as a valid instrument for total income. The researchers have come to these conclusions by conducting linear and quadratic models on the complied dataCarroll et al. (1994) conducted a research about habit formation that consumption was happened at same level when a household was not enjoying same level of income as it did previously. Secondly they tried to analyze the impact of consumer sentiments on the consumption patterns taking into considerations the various economic variables into account. They ruled out permanent income and pure life cycle hypothesis and stated consumer spending was an unclear measure of uncertainty when uncertainty increased the level of consumption take flight down hence leading to precautionary savings.Fei et al. (2003) conducted a research explaining the fact how children influenced the spending patterns of family and in about 27.8% of families, childrens consumption used one trinity of the familys total income. In 35.6% of families, childrens consumption used 40% of the familys total income. In 19.4% of families, childrens consumption took one half of the familys income. And in 7.4% of families, childrens consumption took over one half of the familys income. Thus in most families, the childs consumption level was high than the average per capita consumption of the family. He highlighted various factors such as higher education levels for children including extra amounts paid for private education and tutors.Moreover more recreational activities and high end gadgets analogous mobiles phone, laptops and increased expenses towards health care of the children.Khan and Dhar (2004) carried out a research on behavioral decision theoretic perspective on hedonic and utilitarian choices and they found out that difference between purchase and consumption of goods and service. Th e study found out that there was a very thin line which consumer does not even realize and decision making of consumption was merely affected by income, preference and lifestyle of the consumer.Aydin (2006) carried out the research about the consumption patterns in Turkeys different socio economic classes and found that globalization has led to transformation, reconfiguration and reformulations of class structure and this was leading to social shifts from class based politics to identity politics, ideology to lifestyles and mass production to consumption these forces have fuelled the social change hence leading to emergences of new middle class living a new leisure lifestyle. The research reapproved the fact that social class variables had a significant effect on consumption.Income had the strongest positive effect at all the consumption level simultaneously. Education had effected the class differentiation, i.e., the group with higher education had better living standards thus maki ng education important mediating factor. The psychoanalysis in this research paper depicted the class structuration results due to interaction income, education levels, and residential location..Dorlando(2010) carried out a research to investigate the importance of behavioral principals in micro-foundation of Keynes consumption theory. It was concluded that behavioral instead of maximizing principals can be rightfully considered as possible for micro foundation for Keyness work. He said there were chances of cross fertilization of Keynesian approach and behavioral sciences in reference to theory consumption function. This research showed that utility maximization was not the major focus Keynes representation of individuals behavior and many subjective factors were included in the consumption theory lastly the traditional unite consumption function is immensely based on maximizing agents.3. MethodologyVariables taken in the study will be both demographic and economic variables whic h are to be estimated.In this research thesis both time series and cross sectional data will be used. On economic variables including consumer price index, income and expenditure will be taken. Consumer price index data are time series for 2004-2014 (10 years) and data on income, expenditure, family size and age are cross sectional. Interview through questionnaire will be undertaken from different income groups of the people living in Rawalpindi to gather the data on factors effecting consumption of household. To obtain the estimates of household consumption an Ordinary Least Square method will be used which meets econometric criteria. In this study two equations will be developed, equation one which will shows the consumption of household who belong to low income class while equation two will represents the consumption of household belong to high income class. In the study CPI, will be taken as independent variables which affect the consumption as if there is increase in price leve l for food and non food items over a period of time it would lead to reduce consumption of the masses as it would lead to reduce the purchasing power of money. The people who can afford to buy more goods before inflation now with the same amount of income they can buy less goods after inflation.3.1 DataThe macrocosm in this study comprise of the District Rawalpinidi. Data will be collected through questionnaire from different classes of people besides secondary sources available on other variables.The sample data on the variables will be collected by interviewing different people through questionnaire from the different class of people residing in Rawalpindi and also from secondary sources on monthly basis so that model shall gives true picture regarding the society behavior of the factors affecting consumption.Generally data has two types in statistics1) Primary datafirst hand data2) Secondary dataearlier data availableIn this study primary data will be used for some demographic f eature i.e. age and family size and income. Due to non availability of second hand data on variables like family size and age, and income survey will be conducted in Rawalpindi. The sample will include all the heads of households.By considering the resource and time constraints, method of ordinary least square will be used for which sampled peoples will be surveyed in the area of district Rawalpindi for the study.For addressing the issue, a set of few questions will be developed required for the study to be carried out. The study shall be rely both cross section and time series data values. A set of questions will be ask from the respondents to avail the data on demographic features. A questionnaire will be circulated to different groups or sectors including the Public Sector, and Private Sector. The secondary data will be taken from the sources which includes Pakistan Statistical Bureau and from Pakistan Social and Living Measurement regarding the consumer price index variable.3.2 ModelCHH=f (YL, YH, A, FS, CPI)Dependent VariableCHH= mediocre Household Consumption Expenditure (Rs per month)Independent VariableYL= lower income class (Avgerage monthly income less than or equal to Rs 25000)YH=High income class (Average monthly income of more than Rs 25000 and less than or equal to Rs 40000)CPI=Consumer price index (index to measure inflation on per month basis)A= Average Age of household (years)FS=Family coat (No of persons)On the basis of variables the following equations developed for estimation purpose.CHHL=o+1iYL+2iFS+3iA+4iCPI+i Equation 1CHHH=o+1iYH+2iFS+3iA+4iCPI+iEquation 2Whereo = Intercept 1, 2, 3, 4, is the slope co-efficient of the model.i = Disturbance term of model.i = Number of households (i 1 to 120)Effects of different variables on household consumptionParameter Theoretically expected effect1+/-2+/-3+/-4+/-ReferencesAhmad, E., Shamim, F. 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