The purpose of this paper is to examine empirically the applicability of consumption functions to mainland China. The consumption functions to be considered are the simple Keynes model, the Duesenberry-Modigliani model, and the Brown-Davis- Friedman model. The models are then estimated by means of the maximum likelihood method based on annual data for the period 1952-1985. A Chow test is employed to test the change in consumption patterns.
Each of the models fits the Chinese data extremely well. The empirical results show that current real income and lagged consumption exert a significant influence on consumption. The result of the Chow test indicates that the economic policies and reforms have significantly changed the pattern of consumption since 1979. A significant change in the consumption structure is the shift in the relative importance of durable consumer goods in total consumption.
The dualistic consumption behavior in the rural-traditional and urban-modern sectors indicates that urban consumption is much higher than rural consumption, because urban residents depend mainly on wages and subsidies while the rural sector is self-sufficient in food.
