Income-consumption relationship under relative income hypothesis: empirical evidence from Peshawar, Pakistan

Abstract

The main objective of this research was to empirically investigate the relationship between income and consumption of farm households in District Peshawar, Pakistan. For this purpose, a household level survey was conducted in summer 2012 in two selected villages, namely Tarnab and Akbarpura. Out of the total 3,244 households, a sample of 300 households was randomly selected. The study found that household current level of income, family size, education of household head, and social status were the significant determinants contributing positively to household consumption. Only age of household head was negatively related to household consumption. The results of the study confirms that farm households follow Dusenberry's relative income hypothesis and that household consumption is not only affected by household current level of income but by the highest level of income previously attained as well as the consumption patterns of other households.

Regional Consumption Inequalities in Pakistan under Relative Income Hypothesis

“…This study rejects the existence of PIH under adaptive expectations and cast vote in favour of the (AIH) for Pakistan. Khan et al (2015) analyse people consumption behaviour in the light of RIH for the two villages of Peshawar, Pakistan. Results confirm the existence of RIH.…”

“…The study on RIH excecuted by Akhtar (1983) is a national level analysis and is subject to serious data problems. The scope of Khan et al (2015) is quite limited as it analyses RIH for two villages of district Peshawar in Pakistan. The important role of social aspects in determining consumption behaviour and lack of research in this direction provides the rationale of this study.…”

An Empirical Examination of Relative Income Hypothesis: Evidence from Pakistan

“…In the case of Pakistan specifically a very few studies quantitatively analyze this hypothesis including Akhtar (1983) and Khan, et al (2015). The current work is designed to overcome the limitations of prevailing studies and to provide a supplement to the existing literature on RIH with reference to Pakistan.…”

“…He concludes that consumption is better predicted by income related variables than habitual consumption. Khan, et al, (2015) use primary data to test the RIH with reference to Pakistan. Their findings confirm the existence of income ratchet effect in Pakistan.…”

“…The Relative Income Hypothesis (RIH) is among one of the few theories that highlights this factor and hypothesizes that the social aspect of income significantly affects the consumption behavior (Morgan & Christen, 2005). There are very few studies that empirically analyze RIH in the case of Pakistan (Akhtar, 1983;Khan, Khan, Chaudary, & Fedorova, 2015). Keeping in view the significance of the subject and the existing research gap, the present study investigates the consumer behavior at the national level to provide a quantitative relevance of RIH for Pakistan.…”