An Empirical Study On Chinese Rural Resident Consumption Function Under Reform

Traditional consumption theory is based on the hypothesis of perfect information and constant institution, which is inconsistent with which various uncertain factors have appeared during the reform from planned economy system to market economy system. As a result, traditional consumption theory can't explain Chinese resident consumption behavior effectively.Recently, with the introduction of co-integration, error correction mechanism and precautionary savings theory, which provide a solid theoretical foundation and high reference value to the research on Chinese resident consumption behavior. Therefore, this paper proposes that the long-term equilibrium and short-term dynamic relations between Chinese rural resident consumption and income are changing on the basis that Chinese economy reform has a significant effect on rural resident consumption behavior. This paper then uses the data from 1978 to 2004 to estimate a varying parameter co-integration and error correction model. The results suggest that there exists a changing co-integration relation instead of an ordinary co-integration relation between Chinese rural resident consumption and income. The income, lagged consumption difference and equilibrium error also undergo a changing effect on consumption. To study the motive and its significance which lead Chinese rural resident consumption behavior to mutate. This paper then selects the panel data of Chinese rural resident from 1992 to 2004 to estimate the temporal variance and regional difference of precautionary savings motive strength by means of two-stage OLS method. It finds that Chinese rural resident have a strong precautionary savings motive and western rural resident precautionary savings motive strength is stronger than central and eastern rural resident, and the rolling regression estimates reveal that western rural resident precautionary savings motive strength is becoming weaker, while eastern rural resident precautionary savings motive strength is becoming stronger. Finally, after explaining the empirical findings from various angles, the paper proposes some policies to promote Chinese rural resident consumption expenditure and ease the rapid growth rate of savings.