An Empirical Study On The Growth Of Household Consumption In Heilongjiang Province

Consumption, investment and net exports have been recognised as the "three pillars" of economic growth. Since the adoption of the reform and opening-up policy, China has witnessed a rapid economic development underpinned by its three pillars. However, the effect of consumption on economic growth has declined considerably since the mid-1990s evidenced by a continuous drop in both household consumption and the consumption rate. Therefore, China’s eleventh Five-Year Plan was formulated to enhance the effect of consumption by promoting domestic consumption and balancing the relationship between investment and consumption. The twelfth Five-Year Plan has further highlighted that the central theme of the new plan is to expand consumer demand, especially the domestic consumption, and to improve the public’s purchasing power and consumption expectations. In addition, the structure of consumption should be upgraded to further stimulate household consumption. Hence, the primary focus in the next stage is to promote consumption and to boost its driven effect on economy growth.As a traditional industrial base in China, Heilongjiang province is characterised by its investment-oriented policy, which undermines the household consumption and eventually the regional economy. Although the government of Heilongjiang province has taken initials aiming at improving the economic structure and the living standard of its citizens, the efforts are yet to exercise an effective recovery to the household consumption. This issue has therefore become the top priority of developing the economic policy in Heilongjiang.This research conducts an empirical study to investigate the growth of household consumption in Heilongjiang province. Based on a systematic review of consumption theories and quantitative research methods, this study analyses the evolution of household consumption and its structure in Heilongjiang. The research objectives are to identify the patterns of the growth of household consumption and to offer solutions to improving the consumption structure with the consideration of both economic growth and social welfare. By exploring the barriers to economic growth, this study provides insights into the policy development in promoting the transformation from an investment-driven economy to one fuelled by consumption. The research results would benefit stakeholders in Heilongjiang province and regions sharing similar economic characteristics.This study examines the household consumption and its structure in Heilongjiang province by implementing theoretical analysis, descriptive analysis and econometric modelling methods. Both static and dynamic analyses are incorporated into the research. In particular, factors influencing consumptions are tested through cointegration approach and multiple factor analysis. Then, analyse the characters of consumption growth at different quantiles through quantile regression model. Furthermore, the evolution of the consumption structure in Heilongjiang is investigated by using panel data models. The dissertation consists of five parts and eight chapters presenting the theoretical basis, methodologies, historical and current developments, empirical analyses and conclusions.Part One, which comprises of Chapter1, presents an introduction to the dissertation. The research background and objectives are introduced. Additionally, it provides a clear understanding of the connotation and denotation of consumption growth. After defining the measurements of consumption growth, this chapter introduces the research methods, logical framework, contributions and limitations.Part Two covers Chapters2and3which include literature review and methodology.Chapter2reviews the literature of consumption theories, with a focus on those developed after the Lucas critique. Following a historical path, the random walk hypothesis, precautionary saving theory, liquidity constraint theory, buffer stock saving theory,λ hypothesis, and behaviour theories relevant to consumption growth are evaluated in a systematic manner. This chapter also reviews the research on domestic consumption in China, especially the studies on consumption growth since1990s.Chapter3introduces the methodology. This chapter critically discusses the advantages and limitations of major econometric methods used in the previous literature, such as cointegration and error correction models, panel data analysis, quantile regression, and mean and structural analysis. The detailed review of methodology guides the method development of the empirical study.Comprising of Chapters4and5, Part Three introduces the historical and current developments of consumption growth.Chapter4presents the historical and current developments of the growth of household consumption in Heilongjiang province. The evolution and trend of the consumption level, consumption rate, and marginal consumption propensities are discussed and compared with the national average.Chapter5examines the evolution of consumption structure in Heilongjiang. Firstly, the dynamic patterns of consumption structure in China are identified. Additionally, contrasts on consumption structure are conducted between urban and rural residents in Heilongjiang. The urban-rural difference is then compared with the national level to locate the provincial ranking of Heilongjiang. The analysis of the evolution and trend serves as a basis of the following empirical research.Part Four develops a consumption growth model and offers solutions to promote consumption. Chapters6and7are included.Chapter6proposes the household consumption growth model in Heilongjiang province. From a socio-economic perspective, this chapter first analyses the impacts of a number of factors such as household income, consumption expectations, precautionary savings, liquid constraints, interest rates, prices, industrial structures, policy change, consumption environment, and consumption psychology. By employing the cointegration theory and error correction model, it then tests the effects of economic factors on household consumption to build a model that reflects the consumption change and measures the influences of major factors. Then, analyse the characters of consumption growth at different quantiles through quantile regression model.This chapter concludes with an analysis on urban-rural differences of the consumption structure using panel data.Chapter7provides a perspective on the welfare and explores the solutions to promote household consumption in Heilongjiang. A macro model is developed from the perspective of the welfare to pinpoint the issues existing in the provincial economy. Drawn from the analysis, it is suggested that the social welfare, and eventually household consumption, can be improved by reducing tax rates, lowering the threshold for market entry, and promoting a market-oriented economy.Part Five, which is Chapter8, concludes the dissertation. Based on an overview of the theories and empirical results, this chapter discusses the unsolved issues and the future research direction.The contributions of this study are four-fold. Firstly, this study provides a conceptual definition of consumption growth. Consumption growth has been extensively studied in the previous literature, yet the concept has not been cleared defined. No agreement on the connotation and denotation of consumption growth has been reached. This study bridges this gap by precisely defining the connotation and denotation of consumption growth, and setting up its statistical measurements. Secondly, a unique perspective is provided. As one of the three pillars of economic growth, the research on consumption is enormous. However, previous studies have been mainly focusing on either macro or micro levels. This research contributes to the literature from a multidimensional perspective by incorporating the micro system into the macro economy. Contrasts are conducted both within the province and between the provincial and national levels. In addition, household expenditure per capita is associated with macro household consumption. The three-level association would further contribute to the understanding of consumption. Thirdly, this study proposes an innovative research idea. Recommendations are drawn from the proposed system that incorporates social welfare as a benchmark and connects both macro and micro levels. Comparing with the conventional economic standard, this study brings the consumption research to the next level. Fourthly, the creative research methods make this study stand out from the literature. Starting from a single factor analysis, this study examines the effects of each socio-economic factor on household consumption, based on which a multi-factor model is developed, introducing dummy variables at different stages to gauge the influence of policy change on household consumption.On the other hand, limitations of this study must be admitted. First of all, the unavailability of empirical data limits the depth and methods of this study. As the data of residents’ individual expenditures are unavailable, it is not feasible to compare the differences between individuals or clusters. For instance, as the statistics of income groups have only been available since2007, the constructed panel data is with a relatively short time span. Although the tests yield a favourable result, the accuracy and reliability are not doubt-free. Second, only the national average levels are used as the benchmark to compare with household consumption and its structure in Heilongjiang. The analyses would have benefitted from a contrast to regions with similar levels of income and development, or even a comparison with developed countries at a comparable development stage. Third, the author’s knowledge and skills restrain the use of several newly developed methods such as partial linear model or semiparametric regression model and mean structure changes model. However, these approaches are not adopted due to the limitations of the Eviews programme and the author’s programming skills. It is therefore to be placed in the author’s future research agenda.