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Household Income and Expenditure Relationships: A Simultaneous Equation Approach



Author(s)

Nik Hashim Nik Mustapha, Noorhaslinda Kulub Abd. Rashid, Aslina Nasir

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DOI:10.17265/1537-1506/2011.06.001

University of Malaysia Terengganu (UMT), Kuala Terengganu, Malaysia

Income and expenditure are highlighted in this study as they currently affect the quality of life of the Malaysian society. In the Ninth Malaysia Plan (2006-2010) poverty eradication was emphasized as one of the socio-economic targets to uplift those poor households from the fast moving modern sectors of the economy. The primary objective of this paper is therefore to identify income and expenditure relationships among the households of the east coast of Peninsular Malaysia during the current economic downturn. Attempts to analyze household consumption as a share of total income and to identify factors contributing to household income and expenditure have become a topic of interest in literature. A substantial portion of household income devoted to productive loans characterizes the majority of Malaysians as the economy progresses to a more advance stage. A significant and strong relationship between income and types of household expenditure is explored from the socio-economic perspectives. Using primary data a system of simultaneous equations, namely the two stage least squares (2SLS) was applied. This paper identifies crucial variables associated with the income and expenditure. Some of these variables showing high correlation with the total expenditure are the housing loan, automobile loan and educational expenditure.

expenditure, income, simultaneous two-stage equation method