Aggregation implications of heterogeneous consumer behavior in urban China

• Main Author: Pan, Xuejia
• Other Authors: Chen Kang
• Format: Theses and Dissertations
• Language: English
• Published: 2012
• Subjects: DRNTU::Social sciences::Economic theory::Macroeconomics; DRNTU::Social sciences::Economic development::China
• Online Access: https://hdl.handle.net/10356/50741
• Institution: Nanyang Technological University

This study aims to examine aggregate consumption over heterogeneous agents to shed new lights on China urban consumption, as well as various implications of the findings. Author implements a new method to examine the aggregate consumption from micro level to macro consumption – Heterogeneous Agent Approach. The first chapter of this study compares different models dealing with aggregate macroeconomic fundamentals. Applied in China consumption model, it shows that the Heterogeneous Agent (HA) approach outperforms the traditional Representative Agent (RA) approach due to exploitation of heterogeneous properties among agencies. Empirical results show the aggregated urban MPC has a decline trend affected by the increasing income level and distribution effects. Disposable income has significant positive effect on urban consumption, which is consistent with the theory of liquidity constraint and myopia consumer behavior. To further seek the reason behind the urban consumption decline, author investigates income inequality by using Theil index in Chapter II. The results indicate a negative relationship between MPC and income inequality. Enlarging income inequality, especially intra-urban, is a reason to hinder the increase of China aggregate consumption. Another interest finding is that the dispersion of the urban income distribution is possibly due to the variant speed of the migration from rural to urban. Chapter III explores the impacts of other factors such as precautionary savings, which include medical care, education and housing, and dependency ratio, on the consumer behaviors. Although the impacts are relatively small comparing to income distribution, the results show that increasing precautionary savings and decreasing dependency ratio also impede China urban consumption to increase. In the last chapter, some limitations and extensions are suggested. Author also tries to give some policy suggestions, and in the end draw the conclusion.