Hey, big spender? Not in Kazakhstan

                  John Maynard Keynes sure knew how to consume. Photo source: The New York Times

Two ideas from macroeconomics about how people spend shed light on today's Kazakhstan. One, popularized by the English economist John Maynard Keynes, is one of the most reliable relations in economics. The consumption function says the amount you spend depends on the amount you make. Income drives consumption. 

 The model below draws upon annual data from 2000 through 2022 from the World Bank, expressed in 2015 international dollars (that is, with adjustments for inflation and changes in the exchange rate). "Income" is gross domestic product, the value of domestic production. The function says the typical Kazakhstani spends almost two-thirds of every additional dollar of income from domestic production. The marginal propensity to consume, .645, is in the coefficient column. Kazakhstanis save a lot more than Americans. We interpret saving to include the forced saving of tax payments as well as volunary saving.   

The model is powerful. It explains 95% of the variation in consumption from year to year. We need few other variables in the model to explain consumption, although wealth is a possibility. 

 The intercept is consumption that doesn't depend on income. In the United States, it represents welfare payments to those with no income. In the case below, the intercept is statistically insignificant. That is, we lack strong evidence that Kazakhstanis with zero income have received monetary benefits to speak of. We can detect statistical significance from the P-value column. It says chances are 70% that Kazakhstanis with no income receive no monetary benefits (outside of the sample). 

Kazakhstan's government is conservative indeed. This response to Soviet socialism was common in Central Asian countries that became independent in 1992. 

 Table 1: Consumption regression

R Square    0.953

Standard Error    8182465472.708

Observations    33

 ANOVA        df      SS             MS             F         Significance F

 Regression     1      4.2E+22    4.2E+22    626.679   0.000

 Residual       31     2.08E+21   6.7E+19

 Total             32     4.41E+22

Variable               Coeff.                  T-Stat         P-Val         Lower 95%          Upper 95%        

Intercept              -1349964245       -0.38         0.707         -8.6E+09              5.92E+09

GDP                    0.645                    25.03        0.000         .592                     .697

The second function concerns how much Kazakhstanis spent on foreign goods -- imports. Over the long run, the typical Kazakhstani spends one-seventh of an additional tenge on imports. This is certainly more than in the US: Americans mainly buy from each other. 

That the model explains only four-tenths of the variation in imports suggests that the demand for foreign goods is more complex than the demand for domestic ones.

The intercept is 19.3 billion 2015 international dollars. That is, were GDP zero, Kazakhstan would import goods and services worth that amount. 

 Table 2: Import regression

R Square    0.40

Standard Error    1.04E+10

Observations    33

 ANOVA     df         SS                MS             F             Significance F 

Regression    1        2.22E+21    2.22E+21   20.403     0.000 

Residual      31        3.37E+21   1.09E+20

 Total           32        5.59E+21

Variables     Coeff.         T-Stat    P-value    Lower 95%    Upper 95% 

Intercept      1.93E+10   4.244     0.000       1E+10             2.85E+10 

GDP            0.148          4.517     0.000       0.081               0.215 

  --Leon Taylor Baltimore tayloralmaty@gmail.com 

Notes 

For useful comments, I thank Annabel Benson and Mark Kennet. This update corrects an error in the measurement units for the intercept in the import function; and the interpretation of saving to include the forced saving of tax payment as well as conventional, voluntary saving. 

  

Reference

World Bank. World Development Indicators.  www.worldbank.org