Absolute value and diversity of household spending: analysis on International Comparison Program (ICP) 2011 data

Authors

DOI:

https://doi.org/10.24136/eq.2019.005

Keywords:

household spending, entropy of consumption basket, consumption patterns, consumer choice, grouping of household spending categories

Abstract

Research background: This article investigates the connection between consumer?s budget growth and diversification of household spending. The main question of research is ?are there new drivers of modern processes of consumer spending's diversification, at a time when spending on food has reached the minimum share in the consumer budget.

Purpose of the article: The objective of the article is to clarify the hypothesis about the existence of a certain limit of income (and consumer spending) after which the growing of consumer?s purchasing capacity loses power of influence on spending diversity.

Methods: Theil entropy index was used for measuring the diversity of household spending. This index was defined as a sum of within-group and between-group entropy, which allows for comparing the diversification of household spending in two aggregate groups of expenditure, which were formed by the authors. The Workings? equation was used for modeling the spending entropy?s dependence on their absolute value. Two categories of household spending were regrouped (consolidated) by us through forming a group more related to the development of human economic potential (SMRHD) and less related to these processes (SLRHD). The research was done on the basis of ICP (2011) data, which covers 178 countries and refers to 2011 year ? the latest available on the moment of the article was completed.

Findings & Value added: The results obtained in this research confirmed that there is a limit of household spending?s size, beyond which further increasing of consumers? economic opportunities loses a significant impact on the diversity of consumption spending. However, the weakening of the link between size of spending and its entropy reflects impact of two qualitative differenced factors. The first is relatively much more radical decrease of spending growth influence on within-group entropy for SLRHD. The second ? is relatively much less significant decrease of entropy?s sensitivity to spending growth for SMRHD. Such results reflect the increase in the importance of "non-functional demand components", which reduces the capacity of data on functional distribution of household expenditures to characterize the extent of their diversification.

Downloads

Download data is not yet available.

References

Acemoglu, D., & Pischke, J.-S. (1999). The structure of wages and investment in general training. Journal of Political Economy, 107. doi: 10.3386/w6357. DOI: https://doi.org/10.1086/250071
View in Google Scholar

Yang, X., & Huang, W. (2017). Human capital investment inequality and rural-urban income gap: evidence from China. In Advances in Pacific Basin business economics and finance. Volume 5. Emerald Publishing Limited. DOI: https://doi.org/10.1108/S2514-465020170000001007
View in Google Scholar

Bleakley, H. (2010). Health, human capital, and development. Annual Review of Economics, 2. doi: 10.1146/annurev.economics.102308.124436. DOI: https://doi.org/10.1146/annurev.economics.102308.124436
View in Google Scholar

Bloom, D., & Canning, D. (2003). Health as human capital and its impact on economic performance. Geneva Papers on Risk and Insurance, 28(2). DOI: https://doi.org/10.1111/1468-0440.00225
View in Google Scholar

Boopen, S. (2006). Transport infrastructure and economic growth: evidence from Africa using dynamic panel estimates. Empirical Economics Letters, 5(1).
View in Google Scholar

Chai, A., Rohde, N., & Silber, J. (2014). Measuring the diversity of household spending patterns. Journal of Economics Surveys, 29(3). doi: 10.1111/joes. 12066. DOI: https://doi.org/10.1111/joes.12066
View in Google Scholar

Chai, A., & Moneta, A. (2012). Back to Engel? Some evidence for the hierarchy of needs. Journal of Evolutionary Economics, 1. doi: 10.3386/w6357. DOI: https://doi.org/10.1007/s00191-012-0283-3
View in Google Scholar

Chang, K., & Yung-Hsiang, Y. (2006). Economic growth, human capital investment, and health expenditure: a study of OECD countries. Hitotsubashi Journal of Economics, 47. doi: 10.15057/7644.
View in Google Scholar

Clements, K. W., & Qiang, Y. (2003). The economics of global consumption patterns. Journal of Agricultural and Applied Economics, 35.
View in Google Scholar

Clements, K. W., Wu, Y., & Zhang, J. (2005). Comparing international consumption patterns. Empirical Economics, 31(1). doi: 10.1007/s00181-005-0012-y. DOI: https://doi.org/10.1007/s00181-005-0012-y
View in Google Scholar

Clements, K. W., & Chen, D. (1996). Fundamental similarities in consumer behaviour. Applied Economics, 28(6). doi: 10.1080/000368496328498. DOI: https://doi.org/10.1080/000368496328498
View in Google Scholar

Falkinger, J., & Zweimüller, J. (1996). The cross-country Engel curve for product diversification. Structural Change and Economic Dynamics, 7. DOI: https://doi.org/10.1016/0954-349X(95)00039-P
View in Google Scholar

Feldmann, H. (2017). Economic freedom and human capital investment. Journal of Institutional Economics, 13(2). doi: 10.1017/s174413741600028x. DOI: https://doi.org/10.1017/S174413741600028X
View in Google Scholar

Leibenstein, H. (1950). Bandwagon, snob, and Veblen effects in the theory of consumers' demand. Quarterly Journal of Economics, 64(2). doi: 10.2307/ 1882692. DOI: https://doi.org/10.2307/1882692
View in Google Scholar

Lewbel, A. (2005). Modelling heterogeneity. Boston College Working Papers in Economics, 650.
View in Google Scholar

Lewbel, A. (2008). Engel curves. In New Palgrave dictionary of economics. Palgrave Macmillan. DOI: https://doi.org/10.1057/978-1-349-95121-5_525-2
View in Google Scholar

Muhammad, A., James, L. S., Jr., Meade, B., & Regmi, A. (2011). International evidence on food consumption patterns: an update using 2005 International Comparison Program Data. TB-1929. U.S. Dept. of Agriculture, Econ. Res. Serv. DOI: https://doi.org/10.2139/ssrn.2114337
View in Google Scholar

Randolph, S., Bogetic, Z., & Helfey, D. (1996). Determinants of public expenditure on infrastructure. Transportation and communication. World Bank Policy research Working Paper, 1661.
View in Google Scholar

Seale, J. L. Jr., & Regmi, A. (2006). Modeling international consumption patterns. Review of Income and Wealth, 52(4). doi:10.1111/j.1475-4991.2006.00204.x. DOI: https://doi.org/10.1111/j.1475-4991.2006.00204.x
View in Google Scholar

Theil, H. (1987). The econometrics of demand systems. In H. Theil & K.W. Klements (Eds.). Applied demand analysis: results from system-wide approaches. Cambridge, MA: Ballinger Press.
View in Google Scholar

Theil, H., & Finke, R. (1983). The consumer’s demand for diversity. European Economic Review, 23(3). DOI: https://doi.org/10.1016/0014-2921(83)90039-9
View in Google Scholar

Theil, H., Chung, C. F., & Seale J. L. (1989). International evidence on consumption patterns. JAI Press.
View in Google Scholar

Turi, K. N., Masuda, T., & Goldsmith, P. (2009). Exploiting long-term co-integration between major animal and aquatic food commodities and countries GDP for robust forecasting. Working Paper. January.
View in Google Scholar

World Bank (2015). Purchasing power parities and the real size of world economies: a comprehensive report of the 2011 International Comparison Program. Washington, DC: World Bank. doi: 10.1596/978-1-4648-0329-1. DOI: https://doi.org/10.1596/978-1-4648-0329-1
View in Google Scholar

Working, H. (1943). Statistical laws of family expenditure. Journal of the American Statistical Association, 38(221). DOI: https://doi.org/10.1080/01621459.1943.10501775
View in Google Scholar

Downloads

Published

31-03-2019

Issue

Section

Articles

How to Cite

Verba, D., & Kudinova, A. (2019). Absolute value and diversity of household spending: analysis on International Comparison Program (ICP) 2011 data. Equilibrium. Quarterly Journal of Economics and Economic Policy, 14(1), 99-127. https://doi.org/10.24136/eq.2019.005

Similar Articles

31-40 of 96

You may also start an advanced similarity search for this article.