Economic Growth and the GDP Share of Consumption: An Empirical Analysis for Asia

The majority of Asian countries, in particular, those located in East Asia, such as China, are characterized by high GDP shares of consumption. While over the past two decades there has been a remarkable growth in consumption, and to a lesser extent of consumption per capita, the GDP share of the consumption has declined by a considerable amount in Asia. The article presents projections of the GDP consumption share. The projections are based on time series models and an econometric model that relates the GDP share of consumption to GDP growth. Instrumental variables estimates show that the GDP share of consumption is significantly negatively related to growth: A decrease in PPP GDP per capita growth of 1 percentage point increases the GDP share of consumption by around 2 percentage points. Slower growth in Asia would thus significantly contribute to a higher GDP share of consumption in that region.