An Empirical Evaluation of Consumption Behaviour in Oil Societies: The Case of Kuwait

Theories of consumption function have been tested for many developed and underdeveloped economies with grouped data sets. No empirical work has been done to confirm or disconfirm these theories in the oil-rich economies of the Middle East. This paper applies Kuwait’s rich micro data of the 1972-73 budget survey results to the principal consumption models – the Keynesian Model, the Kaldor Hypothesis, the Friedman Permanent-Income Model and the Life-Cycle Hypothesis. The results of this empirical investigation disconfirm the validity of the strict version of the Permanent-income Hypothesis in favour of the Keynesian and the looser version of the Permanent-Income Hypotheses. The Kaldor model is not strictly applicable and the saving behaviour of Kuwaiti households seems to give support to the Life-Cycle Hypothesis.