Cyrus Kiptoo Kiprotich

The data is obtained from World Bank, African Development Indicators database. The findings reveal the existence of a long run relationship between consumption, income and wealth. This suggests that consumption is significantly determined by income and wealth in Kenya. Income seems to impact consumption more in Kenya compared to wealth as it is evident from the elasticities. Interest rate is also highly significant in determining consumption and appears to have a clear negative impact on consumption as expected. Consumption elasticity obtained for income is 0.62 percent and that obtained for wealth is 0.02 percent. This implies that 62 percent of the consumers in Kenya are sensitive to changes in income while 0.02 percent of the consumers are sensitive to changes in wealth in the long run. Interest rate is highly significant in determining consumption and appears to have a clear negative impact on consumption as expected. This implies that when interest rate is high, households would substitute consumption for saving, that is, increase saving and reduce consumption. On the basis of these findings, the government should sustain measures to create more income in the economy in order to boost the country’s consumption levels. These measures include poverty eradication through job creation to boost income levels of the citizens and increase economic activities which impact positively on consumption. Measures to reduce interest rates through the monetary policy will also lead to increased consumption levels for the country. Wealth creation and sustenance through proper infrastructure such as good roads, railway, communication and adequate security to investors boosts consumption levels and should be upheld.