Peer effects on consumption in rural China

ABSTRACT

This study empirically examines the peer effects of household spending on human affairs, clothing, food, and education in rural China, where villages are often characterized by clan clustering. We employ an iterative algorithm that combines the least square dummy variables regression and instrumental variable estimators to measure the peer effects and their heterogeneity. The results provide compelling evidence for the existence of peer effects on human affairs, clothing, and food expenditures, while the peer effects on education investment come from aligning with high-level spending rather than converging to the average. Furthermore, high- and low-spending households are affected differently by peers and play different roles in the peer group.

KEYWORDS:

• Peer effects
• neighbourhood effects
• consumption
• rural China

JEL CLASSIFICATION:

• D12
• D91

Acknowledgements

This study is supported by the National Natural Science Foundation of China under Grant 71773032; and the National Natural Science Foundation of China under Grant 72003197; and the Humanities and Social Science Fund of Ministry of Education of China under Grant 20YJC790058.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The data that support the findings of this study are openly available from China Family Panel Studies at http://www.isss.pku.edu.cn/cfps/.

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.