Quantifying expenditure hierarchies and the expansion of global consumption diversity

Andreas Chai, Elena Stepanova and Alessio Moneta

Journal of Economic Behavior & Organization, 2023, vol. 214, issue C, 860-886

Abstract: Economic growth stimulates fundamental changes in consumption patterns as consumers who get rich tend to spread their spending more evenly across a wider variety of goods and services. Comparing cross sectional spending patterns across rich and poor countries, we investigate how this diversification process enables more niche patterns of spending to emerge across the global population of consumers. We use entropy measures to quantify the dispersion of household spending across goods and study how it unfolds as GDP rises. Using a gravity model to study international differences in the relative order of income elasticities, i.e. expenditure hierarchies, we show how this diversification process on the national level is correlated with cultural norms, GDP and income inequality. We find that national expenditure hierarchies are relatively similar across countries among necessities, while they are increasingly unique among luxuries. We further consider how rising affluence tends to generate more niche consumption patterns by examining how rising income is positively correlated with demand heterogeneity and income inequality is negatively correlated with market depth.

Keywords: Spending diversity; Income elasticity; Expenditure hierarchy; Niche consumption; Cultural norms (search for similar items in EconPapers)
JEL-codes: D12 D83 J15 O12 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Working Paper: Quantifying Expenditure Hierarchies and the Expansion of Global Consumption Diversity (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:214:y:2023:i:c:p:860-886

DOI: 10.1016/j.jebo.2023.07.012

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