International Journal of Social Sciences Perspectives ISSN: 2577-7750 Vol. 11, No. 2, pp. 93-104. 2022 DOI: 10.33094/ijssp.v11i2.656 © 2022 by the authors; licensee Online Academic Press, USA 93 © 2022 by the authors; licensee Online Academic Press, USA The Effects of Annual GDP Growth on Consumption Spending: Evidence from West African Countries Ismaila Y Jammeh Department of Economics, Management and Industrial Engineering, University of Aveiro, Aveiro, Portugal. Email: isma.jammeh@ua.pt Licensed: This work is licensed under a Creative Commons Attribution 4.0 License. Keywords: GDP growth Consumer spending Panel data Generalized method of moment Least square dummy variable. Received: 4 July 2022 Revised: 8 August 2022 Accepted: 24 August 2022 Published: 12 September 2022 Abstract This study examines the effect of annual growth in the gross domestic product (GDP) on consumption spending in West African Countries from the period 2005 to 2020. Consumption has been a fundamental driver of economic growth, and insufficient consumption spending will lure firms to lay off workers which can lead to short-run fluctuation in the economy. The study employed a dynamic panel model with a set of estimation strategies such as fixed and random effect, Anderson and Hsiao estimation method, difference and System-Generalized Methods of Moment and Least Square Dummy Variable estimation methods to correctly assess how annual growth in the gross domestic product (GDP) affects consumption spending in these countries including additional variables such as Lag consumption spending, foreign direct investment, consumer prices as a measure of inflation and a vector of control such as capital formation and annual population growth. The study found that annual GDP growth and Foreign direct investment have a significant impact on increasing consumption spending thus annual GDP growth is the most crucial factor for increasing consumption spending in these countries. Moreover, lagged consumption spending is also found to have a negative significant effect in reducing current consumption spending while gross capital formation and annual population growth are found to have an insignificant effect in reducing consumption spending in all the estimates except in the Anderson and Hsiao estimation method which shows a positive relationship with consumption spending. Funding: This study received no specific financial support. Competing Interests: The author declares that there are no conflicts of interests regarding the publication of this paper. 1. Introduction At the start of the Covid-19 pandemic which put every economic and non-economic activity at a halt, people were in a panic, some engage in panic buying, thinking that the pandemic will never be over while others were thinking that when the government lockdown the economy, they will not be able to consume the same level they usually enjoyed before the pandemic. During this unprecedented time, we became more upset, perplexed and hopeless when we lost jobs that were so dared to us that we’ve never thought of losing, post us a serious question, why are firms laying -off workers during this hard time, and why are government not taking any action. They probably did what they could do best when many governments around the world introduced stimulus packages that gave households cash bonuses to continue enjoying the goods and services they always enjoyed before the pandemic. This explains why is important to know how economics works and why government give cash bonuses when people are losing their jobs in a crisis situation is fundamentally important in restoring hope and confidence in the economy and crucial as a determinant of economic growth (Mankiw, 2019). Consumption spending has been a fundamental driver of economic growth, an increase in consumption expenditure by households and the government boost aggregate demand in the economy which also makes it profitable for firms to increase their production level by employing more workers and this implies more taxable income for the government. Understanding household consumption spending seems to be a micro question but answering this kind of question significantly depends on the macroeconomic conditions (Mankiw, 2019).