The Effect of Financial Wealth on Private Consumption: Evidence from Nigeria

Abstract

The study investigated the effect of financial wealth on private consumption in Nigeria using Modigliani-Brumberg’s [1] life cycle hypothesis and permanent income hypothesis of Freidman [2] as theoretical basis for the empirics. The data were collected from Central Bank of Nigeria (CBN) statistical bulletin [3]. To analyze the effect of financial wealth proxied by average real market capitalization on real per capita private consumption spending, the study employed the Ordinary least square (OLS) technique as well as an error correction model in a multivariate framework. The empirical findings suggest that both disposable income and financial wealth have positive effect on private consumption in Nigeria. While both effects (disposable income and financial wealth) are positive on private consumption, the effect of financial wealth is infinitesimal relative to that of disposable income corroborating the findings of Ozer and Tang [4] for Turkey. The result further shows a long run relationship between private consumption and financial wealth in Nigeria.