An Analysis of the Determinants of Household Expenditures in Rwanda

Economists use two different approaches, unitary and collective, to analyze household decisions. The unitary approach ignores the differences between single-person and multi-person households, whereas the collective approach states that each person in the household must be characterized by specific preferences. The household’s decisions concern mainly the allocation of their income to current consumption or for savings and future consumer expenditures. This study uses the Comprehensive Food Security and Vulnerability Analysis (CFSVA) data collected from a random sample in 2015 in Rwanda. The ordinary least squares (OLS) method was applied to a linear regression model to estimate the household demand functions (total household consumption expenditures, household food consumption expenditures and household nonfood consumption expenditures). The results show that the socioeconomic characteristics of the household, the possession of productive assets and wealth conditions as well as the household locational controls are among the primary drivers of its consumption expenditures. The findings highlight the policy efforts that improve household human capital (education, health), access to and capitalization of productive assets and financial capital, continuous urbanization of rural areas, and sustained provision of quality infrastructure, to achieve high standards of household welfare.