The social network effect of happiness: an empirical study of Chinese residents’ consumption

LI Shu YU Wenchao

【Abstract】Some scholars worry that the slowdown in China’s economic growth will reduce the growth rate of residents’ disposable income, which would be harmful to consumers’ confidence and willingness to spend. However, it is worth noting that the central government has reduced its economic growth target, emphasized the quality and efficiency of economic growth and paid more attention to improving residents’ livelihood and happiness. With this change in the central government’s economic development concept, ensuring and improving people’s livelihoods, increasing people’s well-being and building happy cities and happy villages have gradually become the main policy goals of local government at all levels. Happiness is a positive emotional experience that reflects a person’s overall evaluation of his or her living conditions. In general, people who feel happier tend to display more pro-social behaviors, such as generosity, cooperation, mutual assistance and altruism, compared with those who are unhappy. As a result, individuals with a higher level of happiness often enjoy a richer social network. The social network effect of happiness both directly promotes household social consumption and weakens the inhibiting effect of the precautionary saving motivation and liquidity constraints on residents’ consumption, leading to the question of whether the social network effect of happiness effectively stimulates residents’ consumption. The literature does not provide any systematic answer to this question. Using the panel survey household sample from the China Household Finance Survey, we evaluated the influence and mechanisms of householder happiness on household consumption. Our results suggested that the one-period lag in householder happiness has a significant positive effect on the household’s per-capita consumption. This basic conclusion still holds after changing the key indicators and regression sample. To overcome the estimation bias caused by a possible reverse causality between happiness and consumption, we used the city-level average sunny days per month as an instrumental variable for happiness to carry out a two-stage least squares regression. We also performed robust checks using a balanced panel dataset and a difference equation. These regression results confirmed the positive effect of householder happiness on household per capita consumption. When looking at heterogeneities in the effect, we found that the positive effect of householder happiness on household consumption is weaker for the subsample of households with younger householders, while factors such as the householder’s education level, householder’s gender, region type, household income and household debt have insignificant impacts on the relationship between householder happiness and household consumption. The mechanism tests suggest that a higher level of householder happiness promotes household social consumption directly and raises the overall level of household consumption through the intermediary factor of the household social network. These conclusions confirm the positive significance of the social network effect of happiness on stimulating residents’ consumption. Although the literature examines the influence of loneliness, an emotional factor, on the health care consumption of the elderly, there is a lack of studies exploring the influence of positive emotions such as happiness on the overall consumption activity of Chinese residents of all ages. This paper enriches the theoretical literature on happiness economics and consumption economics and provides evidence for understanding the importance of personal emotional factors in residents’ consumption decisions. Our conclusions suggest that the transformation of the central government’ s economic development concept to stress the goal of improving people’ s livelihoods and happiness stimulates residents’ consumption, which is important for enhancing the consumption driving force of economic growth and maintaining stable economic growth.

【Keywords】 happiness; household per-capita consumption; social network;

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ISSN:0577-9154

CN:11-1081/F

Vol 55, No. 06, Pages 172-188

June 2020

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