Abstract
Consumption is a crucial determinant of a healthy economy, and its direct linkage with income and employment theories necessitates its study, particularly in the context of private consumption as a global issue. A range of macroeconomic and microeconomic indicators impact private consumption, making it vital to identify the factors that affect consumption in Pakistan. This study aims to achieve this by examining the influence of government spending, income, wealth, and real deposit rate, as well as inflation and population as control variables, on private consumption from 1972 to 2021. The Johansen cointegration technique and the Error correction model (ECM) are utilized to test the long-run and short-run impact, respectively. The findings demonstrate that private consumption has a significant and long-run association with government spending, income, and population. In the short run, real interest rate, inflation, and population have a significant impact on private consumption. No significant relationship between wealth and private consumption is observed in both the short and long run. These results offer useful guidance to policymakers in Pakistan, indicating the need to increase spending on various development projects, such as human capital development, industrial development, increased employment opportunities, and poverty reduction plans. Such initiatives would stimulate the economy and promote private consumption. Additionally, the implications of interest rates and wealth supply provide guidelines for monetary policy implications, rendering the study a unique overview of private consumption in Pakistan
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