Income, Culture, and Household Consumption Expenditure Patterns in the European Union: Convergence or Divergence?

ABSTRACT

This article analyzes income levels and household consumption expenditures across 25 countries of the European Union and focuses on the determination if there is convergence or divergence of both variables over a period of 11 years. It also contains a correlation analysis between household consumption expenditures and national income, and between consumption expenditures and Hofstede's cultural dimensions. A general conclusion from this study is that although there is evidence of convergence of national income across the EU, which is particularly strong within the new Europe and between the old and new Europe, the convergence/divergence analysis of household consumption expenditures shows mixed results.

KEYWORDS:

• Convergence and divergence of consumer behavior
• household consumption expenditures
• Hofstede's cultural dimensions
• European Union

Notes

*Greece is not included due to the lack of data. Source: Authors’ own calculations based on household consumption expenditure data derived from Eurostat.

*Greece is not included. Source: Authors’ own calculations based on household consumption expenditure data derived from Eurostat.

1. Although Cyprus and Malta also joined the EU in 2004, these two countries are excluded from the analysis of convergence/divergence in consumption expenditure patterns due to the fact that they do not share the same experience in transition with the 10 CEE countries.

2. GDP (gross domestic product) is an indicator for a nation's economic situation. It reflects the total value of all goods and services produced less the value of goods and services used for intermediate consumption in their production. Expressing GDP in PPS (purchasing power standards) eliminates differences in price levels between countries, and calculations on a per head basis allows for the comparison of economies significantly different in absolute size. From the expenditure point of view, GDP is composed of private final consumption expenditure + government final consumption expenditure + gross capital formation + exports – imports. Private final consumption expenditure includes final expenditure of households and nonprofit institutions serving households (NPISH), in other words, expenditure on goods or services that are used for the direct satisfaction of individual needs (Eurostat 2008).

3. Itim International is a consulting company utilizing Hofstede's cultural dimensions.

4. Although set somewhat arbitrarily, the 33% cutoff has been widely used by researchers applying the coefficient of variation (see, e.g., Statistics Canada, “School libraries and teacher-librarians,” The Daily, May 4, 2005; accessed at http://www.statcan.gc.ca/daily-quotidien/050504/dq050504a-eng.htm).

5. The data for Bulgaria for 2006 had to be extrapolated. The R² (coefficient of determination) was .949.