Estimation of Private Sector Consumption Function in Iran with Islamic Economics Approach

Abstract

In this study, the estimation of the private sector consumption function in Iran with the Islamic economics approach was evaluated using the Uncorrected Error Correction Model (UECM) band has been based on convergence test (Boys, Shane & Smith, 2001) during the period of 1984-2017. In the estimated function, the consumption expenditure of the private sector in Iran, a function of non-oil GDP, the ratio of household religious expenditure to total household expenses as an indicator of people's faith, inflation and interest rates on bank deposits as a share of funds suppliers' participatory market is considered. The results of this estimation indicate that with a one-percent increase in non-oil GDP, private sector spending will increase by 1.01 percent, and with a one-percent increase in inflation, private sector spending will decrease by 0.63 percent. With a one-percent increase in the people's faith index, private sector consumption is down 0.15 percent. The results indicate that increasing their faith will reduce their consumption. In this study, the interest rate on long-term bank deposits as a share of fund providers in the participation market did not have a significant effect on the consumption of individuals.

Keywords

• macroeconomics
• islamic economics
• private sector consumption
• band convergence test
• unclassified error correction model