The causes of internal habit formation among Chinese urban residents: a multi-layer model perspective

Xuepin Wu and Yongjun Ma

Economic Research-Ekonomska Istraživanja, 2023, vol. 36, issue 3, 2193839

Abstract: Economic growth faces serious challenges due to the COVID-19 pandemic. To promote swift economic recovery, the focus has turned to consumption’s role as a driver of economic growth. To explore the influence of external social environment variables on internal habits, this study improves Naik and Moore’s consumption model and constructs a multi-layer statistical model with habit-forming effects. The study shows, first, that internal habit effects are significantly present in all types of the population’s consumption expenditures, and there are significant cross-regional differences. Second, we find significant moderating effects of inclusive digital finance, education levels, income disparities, and regional economic differences on internal habit formation. Furthermore, the internal habit effect is more influenced by inclusive digital finance and income disparity and less by education and regional economic disparity. Finally, the study proposes policy recommendations for building an inclusive digital financial services infrastructure, improving access to education, reducing income disparities, and balancing regional development. To a certain extent, this study reveals the intrinsic link between the external consumption environment and internal habit effects, providing a new perspective for the government’s use in formulating consumption policies that promote economic growth.

Date: 2023
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DOI: 10.1080/1331677X.2023.2193839

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