Short-Run Effects of Consumption on GDP: An Empirical Analysis for Bulgaria
Short-Run Effects of Consumption on GDP: An Empirical Analysis for Bulgaria

Author(s): Tatyana Ivanova
Subject(s): Economy, National Economy, Business Economy / Management, Socio-Economic Research, Green Transformation
Published by: Икономически университет - Варна
Keywords: household consumption; short-run economic dynamics; procyclicality; real GDP growth; Bulgaria; OLS regression analysis
Summary/Abstract: Background and aim: Household consumption is the largest component of aggregate demand in Bulgaria, consistently exceeding half of GDP. This study examines its short-run role as a driver of economic activity and tests whether changes in household expenditure significantly influence real GDP growth. Scope: The analysis covers 1995–2024 using annual data at constant 2020 prices from the National Statistical Institute. Government and non-profit consumption are excluded to isolate household effects. Methods: Following an Augmented Dickey–Fuller test confirming non-stationarity, an OLS regression model in first differences was estimated. Model reliability was checked using Breusch–Pagan, Breusch–Godfrey, Jarque–Bera, and Ramsey RESET tests, with Newey–West robust errors. Results: The coefficient of household consumption is positive and close to unity (β ≈ 0.96, p < 0.01), indicating an almost proportional short-run transmission of consumption to GDP. The constant term is positive, implying additional sources of growth. Conclusions: Household consumption in Bulgaria is strongly procyclical, amplifying both expansions and downturns. Originality and implications: The paper provides one of the first post-COVID empirical assessments of short-run consumption effects on Bulgaria’s GDP. Findings suggest that consumption-driven growth is rapid but temporary, highlighting the need for policies that strengthen productive capacity and income.

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