Positional spending and status seeking in rural China

Phil Brown, Erwin Bulte and Xiaobo Zhang

No 983, IFPRI discussion papers from International Food Policy Research Institute (IFPRI)

Abstract: Focusing on a remote area in rural China, we use a panel census of households in 26 villages to show that socially observable spending has risen sharply in recent years. We demonstrate that such spending by households is highly sensitive to social spending by other villagers. This suggests that social spending is either positional in nature (that is, motivated by status concerns) or subject to herding behavior. We also document systematic relations between social spending and changes in higher order terms of the income distribution. In particular, and consistent with theories of rank-based status seeking, we find the poor increase spending on gifts as the income distribution tightens so that local competition for status intensifies. In addition families of unmarried men (who face grim marriage prospects given China’s high sex ratios, especially in poor areas) intensify their competition for status by increasing their spending on weddings. The welfare implications of spending in order to “keep up with the Joneses” are potentially large, particularly for poor households.

Keywords: Positional spending; Poverty; Rural-urban linkages; status (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-cna, nep-dev, nep-mic and nep-tra
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Citations: View citations in EconPapers (11)

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Journal Article: Positional spending and status seeking in rural China (2011)
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