Long Term Effects of 'Prosperity in Youth' on Consumption: Evidence from China

Abstract

We test for the long-term impact of experiencing “prosperity in youth” (PIY) on non-traditional category consumption. Using unique twenty-year panel data of individuals from nine Chinese provinces with varying levels of per-capita GDP and rates of per-capita GDP growth, we find robust evidence for the PIY effect. We find both a direct effect of one’s own prosperity and an indirect effect of the prosperity of one’s province during youth on long-term consumption. In particular, the indirect PIY effect is driven more strongly by individuals with low incomes during youth — suggesting that norms and aspirations created by the consumption of non-traditional categories by the rich during one’s youth have significant impact on long-term consumption — almost the same magnitude as the direct effect. The analysis also highlights the importance of separating cohort effects from life cycle effects for taste based products. We highlight the marketing implications for non-traditional categories in emerging markets.