UNDERSTANDING THE HOUSEHOLD CONSUMPTION BEHAVIOR IN URBAN CHINA

Jin Xu () and Dongmin Kong
Additional contact information
Jin Xu: Department of Economics, Huazhong University of Science and Technology, Wuhan 430074, Hubei Province, China
Dongmin Kong: Department of Finance, Huazhong University of Science and Technology, Wuhan 430074, Hubei Province, China

The Singapore Economic Review (SER), 2015, vol. 60, issue 05, 1-21

Abstract: Using the panel urban households’ aggregate data at the province level in China, this paper attempts to identify the source of the rejection of permanent income hypothesis (PIH) in urban households’ consumption. We introduce liquidity constraints, myopia and loss aversion into testable hypotheses and document that: First, the PIH fails in urban China and the consumption is consistent with the liquidity constraints. Second, in regions with the high and moderate economic levels, the consumption behaviors show liquidity constraints in the early period of market-oriented economic reforms (i.e., 1980s). However, with time, the consumption pattern changed to myopia. Third, in region with low economic level, the reverse is observed: a period of myopia gave way to a period of liquidity constraints. Our results suggest that neither myopia nor liquidity constraints are an adequate characterization of consumption in different regions of urban China, and offer clear policy implications for governments who are concerned with boosting the household income and expanding domestic demand.

Keywords: Aggregate consumption; urban China households; liquidity constraints; myopia; loss aversion (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0217590815500629
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:serxxx:v:60:y:2015:i:05:n:s0217590815500629

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0217590815500629

Access Statistics for this article

The Singapore Economic Review (SER) is currently edited by Euston Quah

More articles in The Singapore Economic Review (SER) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().