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Accounting for social spending escalation in rural China

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  • Chen, Xi
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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. --

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Paper provided by Leib­niz Institute of Agricultural Development in Central and Eastern Europe (IAMO) in its series IAMO Forum 2011: Will the "BRICs Decade" Continue? – Prospects for Trade and Growth with number 6.

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Date of creation: 2011
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Handle: RePEc:zbw:iamo11:6

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Keywords: Social Network; Peer Effect; Risk-pooling; Status Seeking; Ceremony;

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  1. Chen, Xi & Zhang, Xiaobo, 2011. "Costly posturing: Relative status, ceremonies and early child development," IAMO Forum 2011: Will the "BRICs Decade" Continue? – Prospects for Trade and Growth 7, Leib­niz Institute of Agricultural Development in Central and Eastern Europe (IAMO).
  2. Antoni Calvo-Armengol & Eleonora Patacchini & Yves Zenou, 2008. "Peer Effects and Social Networks in Education," CReAM Discussion Paper Series 0814, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  3. Brown, Philip H. & Bulte, Erwin & Zhang, Xiaobo, 2011. "Positional spending and status seeking in rural China," Journal of Development Economics, Elsevier, Elsevier, vol. 96(1), pages 139-149, September.
  4. Gubert, Flore & Fafchamps, Marcel, 2007. "The Formation of Risk Sharing Networks," Economics Papers from University Paris Dauphine 123456789/4392, Paris Dauphine University.
  5. Brock, William A. & Durlauf, Steven N., 2007. "Identification of binary choice models with social interactions," Journal of Econometrics, Elsevier, Elsevier, vol. 140(1), pages 52-75, September.
  6. Santos, Paulo & Barrett, Christopher B., 2010. "Identity, Interest and Information Search in a Dynamic Rural Economy," World Development, Elsevier, Elsevier, vol. 38(12), pages 1788-1796, December.
  7. Joel Waldfogel, 2002. "Gifts, Cash, and Stigma," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 40(3), pages 415-427, July.
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