Per capita consumption function for China - An empirical exercise -

An attempt is made in the present exercise to examine the empirical validity of the Keynesian consumption function for the Chinese economy for the period from 1978 to 2009 by fitting both linear and log linear per capita consumption functions underlying the assumption that there is one way causation between per capita consumption expenditure and per capita disposable income. The empirical results show that the Per capita Marginal propensity to consume is less than unity showing the pretence of marginal propensity to save. Further the results show that the Per capita elasticity of consumption expenditure with respect per capita disposable income is found to be unity both in linear and log linear per capita consumption functions in China.