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Changes in the distribution of household consumption in Southeast Asia

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Abstract

This paper uses household survey data from five Southeast Asian countries (Cambodia, Indonesia, the Philippines, Thailand and Vietnam) to examine changes in the distribution of per capita consumption over the period 2006–2014. We perform a decomposition analysis to study the factors that contribute to changes in per capita consumption at the mean and along the entire distribution. Our findings indicate that changes in per capita consumption over time are mainly driven by changes in household income, especially at the top of the distribution. We also find that a sizeable part of the changes in per capita consumption may be attributed to changes in the household size and educational attainment. Urbanization typically contributes to an increase in per capita consumption with exception of the Philippines, where urbanization has declined over time. The contribution of changes in demographic characteristics to changes in per capita consumption is generally positive but relatively small. Our findings highlight the importance of policies that aim to alleviate poverty by enhancing educational attainment and reducing fertility. These policies are particularly relevant in Cambodia, Indonesia and the Philippines, where national fertility rates remain high.

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Notes

  1. See Asian Development Outlook 2017 Update (https://www.adb.org/sites/default/files/publication/365701/ado2017-update.pdf).

  2. See https://www.ceicdata.com/en/indicators.

  3. See Indonesia’s purchasing power, retail sales and consumption on the rise. (https://www.indonesia-investments.com/news/news-columns/indonesia-s-purchasing-power-retail-sales-consumption-on-the-rise/item8839?).

  4. http://data.worldbank.org/indicator/SP.DYN.TFRT.IN.

  5. http://data.worldbank.org/indicator/PA.NUS.FCRF.

  6. This observation is consistent with the slowing growth of the urban population in the Philippines observed since the 1990s (Porio 2009), a pattern that is quite different from other countries in the region.

  7. There are different decomposition methods, which might be suitable for studying distributional changes, such as the CFM approach suggested by Chernozhukov et al. (2013) or the recentered influence function (RIF) decomposition based on unconditional quantile regression (Firpo et al. 2009). We choose the DFL approach because it does not require strong assumptions regarding the functional form of the relationship between outcome variable and covariates. Recent studies often decompose the estimates obtained from an unconditional quantile regression (Firpo et al. 2009), which typically relies on a linear regression model. However, Barsky et al. (2002) point out that decomposing linear regression estimates is problematic because the decomposition results may be biased if the underlying conditional expectation is not linear. Firpo et al. (2007) propose a reweighting approach to address this problem. The reweighting approach involves the inclusion of specification errors in the decomposition equation (Fortin et al. 2011). In the context of our analysis, the specification errors are quite large, which complicates the interpretation of the parameters of interest.

  8. The decomposition approach of DiNardo et al. (1996) is path dependent, i.e. the decomposition results depend on the order in which the sets of determinants are included in the model. We follow (Baron and Cobb-Clark 2010) and estimate all 5! = 120 possible permutations and calculate the average. This approach is consistent with the calculation of the Shapley (1953) value used in cooperative game theory (Shorrocks 2013).

  9. The contribution of household income to changes in per capita consumption in the Philippines is larger than 100%, indicating that increases in household income were not only used to increase consumption but also to increase savings.

  10. It would be more precise to interpret the contribution of household income to changes in household per capita consumption if we could analyse the effects of formal and informal income separately. However, the household surveys in the selected countries do not report household income to formal and informal sources. In addition, each country has different definition of formal and informal employment. For example, according to the International Labour Organisation (ILO) definition, a regular employee in Indonesia as a person who works for another person or an institution with a stable contract for pay in cash or in-kind, therefore, paid-in-cash jobs and wage workers as a proxy for the formal sector (Saget 2006). In Vietnam, the Ministry of labour—Invalids and social affairs defines informal employment as those working for family without payment and those working for wage or salary without social security. Hence, working for wage with social insurance is considered to be formal employment. Due to this limitation of our data, we used household total income from all sources in our empirical analysis.

  11. The relatively small contribution of income to changes in household consumption in Cambodia may either result from changes in macroeconomic conditions (such as price changes) or policies that aim to increase household consumption (such as subsidies or lower taxes on consumption). Another potential explanation for this can be the measurement error in terms of household income. According to Cambodia Socio Economic Survey 2014 Report (Cambodia National Institute of Statistics 2015), self-employment in small businesses and agriculture are common in Cambodia and it is difficult to gather accurate income data for these types of employment. Around 80% of households in our sample live in rural areas with the main income sources coming from agriculture and small non-farm business. We also observe that a high proportion of households report extremely low levels of household income and around 45% of households report household income levels that are below their household consumption.

  12. http://data.worldbank.org/indicator/NE.CON.PRVT.KD.

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Acknowledgements

I am grateful to Mathias Sinning, Bruce Chapman, Amy Liu, two anonymous referees and participants of Arndt-Corden Department Seminar for their valuable comments. I also gratefully acknowledge the financial support from the Australian Research Council (DP150104247).

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Nguyen, G. Changes in the distribution of household consumption in Southeast Asia. Econ Change Restruct 53, 39–60 (2020). https://doi.org/10.1007/s10644-018-9236-7

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