Accounting for social spending escalation in rural China

Xi Chen

No 6, IAMO Forum 2011: Will the "BRICs Decade" Continue? – Prospects for Trade and Growth from Leibniz Institute of Agricultural Development in Central and Eastern Europe (IAMO)

Abstract: It has been widely recognized that the poor spends a significant proportion of their income on social spending even at the expense of basic consumption. What are the motives behind the observed lavish social spending among the poor? We attempt to test three competing explanations at the social link level, risk-pooling, peer effect, and status concern, via a uniform framework based on a unique primary dataset. The data set include household information from a three-wave census-type household survey as well as a long-term gift record for all households in three villages in a poor region in rural China. Our dyadic estimations confirm the prevalence of peer influence and the status seeking motive in shaping gift spending and its rapid growth, while risking pooling is not a significant explanatory factor. A 1% increase in peers' gift spending per occasion leads to a 0.13% - 0.34% increase in one's own gift per occasion, depending on whether household fixed effect or pairwise fixed effect dyadic model is estimated. Status seeking for the bottom 25% and the middle 50% groups significantly pushes up gift expenditure. Moreover, large windfall income and marriage market pressure further intensify status competition, escalating gift giving behavior.

Keywords: Social Network; Peer Effect; Risk-pooling; Status Seeking; Ceremony (search for similar items in EconPapers)
JEL-codes: D63 D85 R20 (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-dev and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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