The aim of this study is to estimate a consumption model for developing countries. For this purpose, Life Cycle-Permanent Income Hypothesis under rational expectations is estimated with the data collected from 54 countries in three different income groups. In the study, static panel data analysis method is applied using annual data for the period of 2000-2011 for each country. According to the empirical results for low income countries, no statistically significant findings were obtained. On the other hand, while the results are statistically significant, lower and upper middle income countries are excess sensitive to current income level. Hence Rational Expectations Life Cycle-Permanent Income Hypothesis is not seen valid for developing countries. This finding is derived from liquidity constraints, precautionary saving incentive and myopic effects based on households decisions.
Key words: Key Words: Consumption expenditures, developing countries (DCs), the permanent income, panel data analysis. Jel Classification: E20, E27 Article Language: EnglishTurkish
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