Research Article

Consumption Structure and Net per Capita Income: The Case of Rural Households in Hebei Province China

Wang Jian1, Abdur Rehman2*, Noor Khan3, Wang Zhengjia4, Ji Peng-fei5, Xie Cong6, Muhammad Niamatullah Khan Babar7 and Raheel Saqib8

1College of Economics and Trade, Agricultural University of Hebei, People’s Republic of China, Baoding 071000, China; 2Dept. of Agricultural Economics, Gomal University Dera Ismail Khan, Pakistan; 3Institute of Development Studies, Faculty of Rural Social Sciences, the University of Agriculture Peshawar, Khyber Pakhtunkhaw, Pakistan; 4Department of Centre of Computer Experiment and Teaching, Agricultural University of Hebei, China, Baoding 071000, China; 5Department of Agricultural Economic and Management, School of Business, Agricultural University of Hebei, Baoding 071000, China; 6Department of Regional Economics, College of Economics and Trade, Agricultural University of Hebei, Baoding 071000, China; 7Department of Agricultural Economics, faculty of Agriculture, Gomal University Dera Ismail Khan, Pakistan: 8Dept. of Agric. Extension Edu. & Communication, The University of Agriculture, Peshawar.

Received | October 07, 2017; Accepted | January 30, 2018; Published | February 27, 2018

*Correspondence | Abdur Rehman, Gomal University Dera Ismail Khan, Pakistan; Email: drrehmanagec@gu.edu.pk

Citation | Jian, W., A. Rehman, N. Khan, W. Zhengjia, J. Peng-fei, X. Cong, M.N.K. Babar and R. Saqib. 2018. Consumption structure and net per capita income: the case of rural households in Hebei Province China. Sarhad Journal of Agriculture, 34(1): 202-208.

DOI | http://dx.doi.org/10.17582/journal.sja/2018/34.1.202.208

Keywords | Consumption structure, Extend linear expenditure system (ELES), Gray relational analysis, Per capita income, Rural households

Introduction

The consumption structure refers to the certain kinds of social economic conditions and the proportional relation by which the people consume various types of consumer goods in the process of consumption. The consumption structure generally reflects in a certain period of time that individuals and society possess, the various consumption quantities which have already entered into the real consumption process and also the accomplished part of the consumption demand structure. The transformation and evolution of consumption structure is the specific form of consumption level concerning consumption theory (Keynes, 1936). Number of Scholars have conducted the empirical tests on the theory of consumption functions, which is considered as the part of macroeconomic theory. On one hand, the Keynes theory of consumption function states that consumption increases with the increase in income. On the other hand, the absolute income hypothesis of diminishing MPC is inconsistent with the subsistent economic facts. Kuznets (1955) studied the phenomenon of Kuznets mystery, that in the short run MPC is less than APC and in the long run the MPC or APC is stable.

In the 21st century along with the gradual improvement of China’s socialist market economic system, the rural economy has been developed rapidly, per capita rural households consumption expenditures is growing continuously and consumption structure has changed significantly. At present livelihood issues have been paid more attention in all circles. The report of the 16th national congress emphasized on the increasing level of farmers’ income, improving the environment of rural living and balancing the development between urban and rural economy should be considered as the significant goal. The rural households are huge consumer groups. It is essential to realize the law which has shown by the promotion of rural households consumption structure, because it is not only relates to the policy implementation of the construction of a rich society, but also reflects the progress which is combined with China’s national condition to economic theory research. As for the hot spots about the problems of the rural households’ consumption, the domestic scholars have also conducted the empirical research. Bing et al. (2008) and Yu et al. (2006) applied the method of GRA to analyze the trend prediction of rural households consumption based on the prediction of the per capita net income and consumption. The study finds out that at present and in future, the rural households consumption shows the subsistence form on emphasizing the physical consumption and also the favorable policies still needs to be strengthened, and pointed out that income played weaker role in the expenditure of hedonic consumptions such as household equipment, healthcare and transport communication. Linjie et al. (2006) empirically analyzed the income elasticity of rural households consumption in Hebei province from 1983-2004 and got various kinds of income elasticity of consumption coefficient. Therefore they pointed out that somehow the overall income elasticity of consumption reduced in this period. The growth rate of most of the consumption demand was lower than per capita incomes. So what are the characteristics of rural households’ consumption structure in Hebei province and what is the trend of it. There is a doubt that the total per capita consumption expenditure and the total per capita net income can reflect the stability of the consumption function theoretically. The literature shows the rural households consumption of Hebei province should belong to the lower income group, so what is the relationship between general income and the consumption. According to Thomas (1966), it couldn’t get both reality and precision in economics. Based on the analysis and research mentioned above, this study has applied descriptive statistics, Extend linear expenditure system, Gray relational analysis etc. to make a research systematic based on the historical data of the rural households consumption index and per capita net income in Hebei province. Moreover, by means of residual test to qualify the results, we can forecast the rural households’ consumption structure and income level from 2015 to 2017 in Hebei province in order to get more accurate results.

Materials and Methods

Data sources

The data on the rural households consumption expenditures such as food, clothing, residents, household, healthcare, transport, education, others consumptions and the net per capita income of the rural households of Hebei province are taken from the Hebei Province Statistical Yearbook 2004-2014.

The extend linear expenditure system model

The ELES model is used in this research study. The model can be described as Xi is the households consumption expenditure on the class i products and make Xi = piQi= piqi+bi (I-XB), (I = l, 2, m). Therefore, Qi is the households’ demand for the class i products, pi is the price of the class i products, qi is the basic demand, bi is the marginal propensity to consume, I is the income level and XB = ∑piqi is the total basic demand expenditure. When the basic demand Xb assumes not changing, according to the model Xi= piQi = piqi + bi (I-XB), sets ai = piqi - biXb, ai is the constant, then a linear model of a consumption demand can be written as Xi = ai + biI. The ELES model not only directly reflects the composition of various residential consumptions expenditure, but also can be used to calculate the MPC, income and price elasticity of demand.

Estimating coefficient of ELES model

Assumed that a linear model of a rural consumption demand in Hebei province as Xi = ai + biI + ui and ui as the random disturbance term. We can use the panel data of per capita income and various consumptions in the statistical yearbook of Hebei province (2000-2014) to estimate the undetermined parameters ai and bi of the linear model. Then we can calculate the current basic demand and various income elasticities.

1. 1. Utilizing the least square method to estimate the linear regression model. Xi = ai + biI. ai = pi qi- biXb, i=1, 2,...m;
2. 2. Calculating the total basic expenditure: XB= ∑ai/ (1-∑bi)
3. 3. Calculating each basic expenditure: pi=ai+biXB
4. 4. Calculating income elasticity: I.bi/Xi

The grey relational analysis for the prediction of the rural households

Consumption structure in Hebei Province: GRA is a method of raw data generation, processing, analyzing the similarity and differences of factors of a system in terms of their developing trends, aiming to seek the system’s fluctuation rule. Using the generated data which are of strong regularity to establish the corresponding differential equation model, so that we can predict the status of the development trend in the future.

Results and Discussions

The following figure indicates the per capita consumption expenditure of rural households in Hebei province for the proportion of the total consumption expenditure.

In Figure 1, the people in Hebei province, basic life consumption such as food and household consumption are the main aspects of the total living consumption expenditure. Therefore, the food consumption has increased from 539.33 RMB in 2000 to 2421.2 RMB in 2014, but the proportion to the total consumption expenditure is on the declining trend from 39.508% to 29.355% means the Engel coefficient is decreasing, which indicates that the Hebei province rural households are at the stage of improving the food consumption quality. The proportion of household consumption is the second, also has shown the increasing trend from 2000 to 2014 and the proportion to the total living consumption expenditure varies from 23.589% to 22.533%. However the consumption on clothing, household, health care, transport, education and other miscellaneous goods have varied 481.61%, 408%, 688.71%, 1046.52%, 658.74% and 84.72%. And the proportion of these goods to the total living consumption expenditure varies from 7.679%, 4.791%, 5.734%, 6.193%, 9.574% and 2.935% to 7.052%, 6.159%, 9.562%, 13.901%, 9.199% and 2.240% respectively. Food consumption expenditure accounts for the largest proportion of the total expenditure, and the Engel coefficient is considered as the general standard of judging the stage of life quality. The life quality consumption stage of rural households moved towards the wealthy well-off society from the basic well-off society.

The above Table 1 represents the statistics of the Hebei Province rural households’ main consumption demand over 15 years. In a long period 2000-2014, the per capita income of the rural households has a close relation with the total consumption (the correlation coefficient is 0.991). Similarly the proportion of pure income to food, clothing, residence, household, healthcare, transport and educational consumptions are 0.996, 0.988, 0.987, 0.992, 0.981, 0.961 and 0.929, respectively. There regression calculation shows, that consumption growth is indeed faster than the income growth, marginal propensity to consume is greater than the average propensity to consume. All these prove that the level of rural households’ income and consumption is still lower in Hebei province. The average trend of APC shows, that APC in 2005-2014 is 22.135 percent higher than one in the recent 10 years from 2000-2004, which obviously indicates that the income level of rural households has improved.APC of each consumption unit shows that the proportion of food, clothing, family equipment, housing, health care,

Table 2: The correlation between the rural households consumption index and the net per capita income in Hebei Province from 2005-2014.

transport communication and cultural entertainment are increasing. Among these, the propensity to consume of transport communication and health care are increasing sharply to 56.806% and 71.524% respectively, in the given period. The analysis of the income elasticity of demand represents the response of the consumer to the changes between demand of certain commodities and income. It is also able to measure the sensitive degree to the changes of consumers’ income and products demand. The analysis of MPC shows as income increases, the MPC of rural households’ food, clothing and other main consumer goods are all positive in Hebei province, means that with the improvement of rural households’ income, the consumption demand of rural household also increases. Meanwhile, according to the numerical value of the individual consumption function MPC among all kinds of goods, food consumption ranked as the first, living ranked second, the third is the transportation consumption. The data shows that the rural households’ basic living consumption is still an important position (both the values of MPC and income elasticity are rising). Consumption structure is low as a whole. However with the increase of income, the demand for safety and the quality of the life consumption are gradually improving, especially the consumption of transport and communication, which has already become the hot spot of the rural households consumption. The values of rural households’ income elasticity of demand to various consumptions are all greater than 1. The food is 1.009 which indicates that food consumption of the rural in habitants is lack of income elasticity with the increasing of income. The clothing is 1.272 and family equipment 1.298. These have become the necessities in rural consumption without large income elasticity, which represents the main demand for commodities of the rural households in the consumer market. Therefore if the household appliances sold in the rural areas, the wide market would come into being. The most sensitive income elasticity is the transport and communication as 1.583 which shows that the demand of modern industrial and high technological information products are rising in rural households life, less profit and high revenue contribute to the development of agricultural modernization. The income elasticity of health care is 1.589, which means that all the rural households need to pay more and more attention on their health with the increasing income.

Correlation refers to the mean value of correlation coefficient between the consumption of the rural households and the net per capita income written for ri. In Table 2, the correlation order r1>r2>r7>r6>r4>r3>r8>r5 reveals that food consumption stands first, household consumption has second and thirdly the clothing consumption have highest close relation with the per capita income of rural households. This indicate that with the improvement of rural households’ consumption especially after meeting the rural households subsistence level and household consumption,

Table 3: Related indicators of the value of residual test from 2005-2014.

Table 4: Forecast of per capita net income and consumption expenditure of rural households in Hebei Province from 2015-2017.

In Table 3, the prediction accuracy grade is good for all cases such as the rural households per capita income, total per capita living consumption, food, clothing, residential, family equipment and appliance, transport communication and health care’s consumptions except the educational consumption grade that is just qualified. The eight are all passed in the test that can be applied in the prediction analysis.

Grey prediction analysis

Generally that the prediction accuracy of the model is inversely proportional to the length of prediction. Therefore, this paper will predict three periods (2015, 2016 and 2017). And the predicted values are shown in Table 4.

The data in Table 4 shows that up to 2017, the prediction value of rural households per capita income and various consumption expenditures are increasing, while consumption propensity are also increasing, while food consumption propensity remains the same.

Trend analysis

The correlation calculated between the consumption index of the rural households and the per capita income in Hebei province is shown in Table 5. The correlation order between 2005-2014 is different from the predicted correlation order between 2015-2017. The analysis shows that the trend of educational consumption is not very sharp. According to the survey, the scientific and technological quality of rural households is still low in Hebei province. However,

Table 5: The correlation between the rural households consumption index and the net per capita income in Hebei Province for 2015-2017.

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