Factors Effecting Private Consumption in India: An ARDL Approach

Abstract

Various macroeconomic and microeconomic factors influence household expenditure. This study thus attempts to establish long-run and short-run relationships among consumption, credit, capital formation, and current account deficit (CAD). By applying autoregressive distributed lag (ARDL) and Granger causality models, results of the study suggest that capital formation is the primary factor influencing consumption in the long run. It must be noted that consumption-led growth post 2000 was financed by rise in credit. Imports will rise in response to rising GDP and rising exports, and the main cause of CAD has been a persistent trade account deficit. In this article, pre-COVID-19 macroeconomic conditions have been studied.