Spatial and Temporal Differences in the Relationships between Residents’ Income and Consumption in China: A Dynamic Analysis Using Functional Data Analysis

Income inequality and consumption gaps between urban and rural residents are prominent problems in the economic transition phase of China. Stimulating consumption, expanding domestic demand, and shifting development modes are inevitable choices for maintaining China’s economy with healthy, stable, and endogenous growth, and the key premise is to clarify the coordination relationship between residents’ income and consumption. In view of that, this study incorporates the spatial factors of three economic zones and time factors of China’s economic transition into an analytical framework. By transforming discrete data into continuous functions, we compared the regional differences and temporal characteristics of the relationship between residents’ income and consumption based on the two perspectives of static absolute level and dynamic growing speed. The result shows that: (1) There are significant differences in the absolute levels of original income and consumption among residents in the eastern, middle, and western regions of China, whereas the growing velocity and acceleration of income and consumption do not have significant regional differences. (2) There is a highly positive canonical correlation both in the absolute growth amount and dynamic growth potential of residents’ income and consumption, whereas their nonlinear co-variation has obvious temporal characteristics, and the degree of canonical correlation has significant regional differences. Based on these conclusions, China’s government need not consider regional factors too much when formulating and implementing policies to narrow residents’ income gap and stimulating consumption in order to expand domestic demand, but should discriminate the specific coevolving period of income and consumption and take into account the difference in average consumption rate of different social strata.