Determinants of Household Consumption Patterns: Evidence from Malaysia

Ng, Lee Yan (2025) Determinants of Household Consumption Patterns: Evidence from Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

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Abstract

This study investigates the macroeconomic determinants of household consumption expenditure (HCE) in Malaysia, with a focus on the effects of gross domestic income (GDI), economic growth (EG), working-age population (WAP), and the consumer price index. The primary aim is to investigate how these factors influence household consumption patterns, particularly in context of rising living costs and demographic shifts. Based on Keynesian consumption theory, the Autoregressive Distributed Lag (ARDL) model is applied to annual time-series data from 2001 to 2023. Stationarity tests (ADF and PP), cointegration analysis, and error correction models were used to evaluate the short- and long-term relationships between variables. The empirical findings show that GDI, EG, and WAP all have a positive and statistically significant impact on HCE, implying that income growth, a productive workforce, and economic expansion are important drivers of household expenditure. In contrast, CPI has a negative impact on HCE, showing that rising prices reduce household purchasing power, particularly among low-income groups. The robustness and dependability of the model are validated using diagnostic tests. These findings have significant policy consequences, highlighting the necessity of investing in human capital, controlling inflation, and raising wages to maintain domestic consumption. Along with pointing out limitations including data depth and variable selection, the study suggests that future studies employ household-level data for a more thorough examination. Keywords: Household consumption, Macroeconomic variables, ARDL model, Malaysia, Working-age population, Consumer price index, Economic growth, Gross domestic income