Examining the Macroeconomic Drivers of Household Consumption in Bangladesh: A Time Series Econometric Approach (1993-2022)
Shamima Akter, Tamanna Sultana Sumi, Md. Moniruzzaman Muzib
Abstract
This analysis uses annual time series data from 1993 to 2022 from the World Bank, UNDP, and ILO to examine the macroeconomic factors influencing household spending in Bangladesh. The research assesses both short and long-term dynamics using the Autoregressive Distributed Lag (ARDL) bounds technique, Ordinary Least Squares (OLS), the Augmented Dickey-Fuller (ADF) test, and an Error Correction Mechanism (ECM). According to OLS results, household spending is considerably increased by GDP growth (coefficient = 5.41, p < 0.01), although the Human Development Index (HDI) and unemployment are statistically negligible. Although long-run coefficients indicate negative impacts of GDP, reflecting inflation, inequality, and informality in the labour market, ARDL bounds testing validates long-run co-integration between GDP, HDI, and consumption. ECM estimations show that lagged consumption is the primary driver of short-run changes (coefficient = 0.93, p < 0.01), with GDP and HDI having only a minor impact. The results suggest that welfare gains cannot be guaranteed by macroeconomic growth alone. Reforms to the labour market, inclusive growth methods, and closer ties between income-generating and human development should be the top priorities of future policy. Strategies to maintain household welfare in Bangladesh can be better informed by more studies on remittances, geographical differences, and income distribution.