Measuring the role of liquid assets in consumption: A cross country view of the world economic periphery

A new non‐traditional identity for the role of liquid assets in consumption in terms of income distribution effect is developed and analyzed. It is contended that in the case of developing countries with increasing monetization of the economy, the rapidly accumulating liquid assets relative to income indicate a highly skewed distribution of income which in turn is conducive to their saving behaviour. The argument is theoretically presented and statistically tested for two major developing regions of the world, Asia and Latin America. By using cross country data, their regional consumption functions are constructed, the long term elasticities are estimated and the aggregate consumption expenditures for three years are generated.