Analysis of the Influence of Economic Factors on Household Consumption using Panel Data Regression in Central Java Province

Abstract

Abstract: Household consumption is a crucial indicator reflecting the level of societal welfare and serves as a primary component in the formation of Gross Regional Domestic Product (GRDP). According to data from Statistics Indonesia (BPS, 2021), household consumption in Central Java Province contributes significantly to the total GRDP, although it has shown fluctuations over the years. Therefore, identifying the macroeconomic factors that influence household consumption in the region is essential. This study aims to analyze the influence of macroeconomic variables on household consumption in Central Java Province. The method used is panel data regression by combining cross-sectional data from 35 districts/cities and time series data from 2019 to 2023. The data were obtained from official publications of BPS Central Java. The independent variables analyzed include GRDP, population, open unemployment rate, and poverty rate. Three panel data regression models are used in this study: the common effect model, the fixed effect model, and the random effect model. Classical assumption tests including normality, multicollinearity, and heteroscedasticity were conducted to ensure model validity. The results show that GRDP, population, unemployment, and poverty significantly influence household consumption. The best-fitting model is the Fixed Effect Model (FEM) with a coefficient of determination of 88.86 percent.