How Important Are Wealth Effects on China's Consumer Spending?
This paper investigates the impact of disposable income and assets on consumer spending trends in China. By employing the vector error correction model on the national quarterly data, we demonstrate that the wealth effects arising from asset value changes are remarkable. There is only one long-run cointegrating relationship among income, consumption, and assets. The long-run consumption elasticity of assets is found to be around 0.51. In addition, evidence shows that assets will restore the equilibrium relationship in the long run when the system is disturbed by external shock. Variance decomposition analysis indicates that assets render a more lasting pronounced impact than income on consumption variations in China.
Volume (Year): 43 (2010)
Issue (Month): 2 (March)
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