Application of alternative theories of consumption in Sudan 1956-2005

Abstract

The main purpose of this research is to apply the alternative theories of consumption in Sudan, so as to test whether the Sudanese consumers behave as life-cycle permanent-income theory predicts, and determine the most representative model of consumption among the three macroeconomics models of consumption: Random Walk Model, Error Correction Model and Continuous Time Model, using the annual data for the period 1956-2005. The hypotheses of this study are: - The Sudanese consumers behave as if life cycle permanent-income theory predicts. - Random Walk will not represent consumption pattern for the Sudan economy. - Continuous time model of consumption is the most representative model of consumption for the Sudan economy. - Error correction model is not the most representative model of consumption for the Sudan economy. Eviews Package has been used for the statistical analysis for the data of study. The research based on secondary data obtained from Central Bureau of Statistics. The testing of the Sudanese consumers behavior was through (Random Walk Model), starting from the restricted model up to four alternatives for this model. The research utilizes the co-integration Theory and (Error Correction Model) to specify the dynamic formulation of the Sudanese consumption. The most important findings of the study illustrate that: Sudanese consumers did not behave as the Life Cycle-Permanent Income predicts. Random Walk Model is not the most representative for the Sudan economy. Two consumption models have found according to the empirical results for the Sudan economy: (Error Correction Model and Continuous Time Model). (Error Correction Model) is the most the most representative model of consumption for the Sudan economy. The consumers do not plan to spend in each year the same as they spent in the equivalent previous year. This behavior is accepted in a country with high level of poverty. The main recommendations of the research are: - To increase the capital stock by increasing the net investment through many facilities as incentives for additional investment and this will encourage production and income generation, this directly increases consumption. - The application of the fiscal policies should take aggregate supply and aggregate demand into consideration, and should be consistent with the macroeconomic policies, that are to have synchronized policies, especially for consumption.