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The Consumption Effects of Population Concentration

Author

Listed:
  • Cai, Zhengyu
  • Yan, Yu

Abstract

This paper empirically examines the causal effects of population concentration on household consumption in China and explores the underlying mechanisms. After addressing endogeneity concerns from various sources, our results show that a 1% increase in urban population density leads to a 0.43 percentage point increase in household average propensity to consume and a 59.73 yuan increase in per capita consumption expenditure. Mechanism analysis reveals that, beyond the effects of urban income premiums, population density reduces consumption transaction costs and enhances social interactions, both of which encourage higher consumption. Additionally, population density raises non-housing consumption among some households by driving up housing prices.

Suggested Citation

  • Cai, Zhengyu & Yan, Yu, 2025. "The Consumption Effects of Population Concentration," GLO Discussion Paper Series 1631, Global Labor Organization (GLO).
    • Handle: RePEc:zbw:glodps:1631
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    File URL: https://www.econstor.eu/bitstream/10419/320559/1/GLO-DP-1631.pdf
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    More about this item

    Keywords

    population density; household consumption; transaction costs; social interactions; housing prices;
    All these keywords.

    JEL classification:

    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis

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