The Relationship Between Happiness and Consumption Expenditure: Evidence from Rural China

We use data from the 2016 China Labor-force Dynamics Survey (CLDS) to examine the relationship between happiness and consumption expenditure of rural farmers in China. A two-stage residual inclusion approach is applied to tackle the potential endogeneity issue of happiness. The empirical results show that a higher level of happiness is associated with an increase in consumption expenditure in general. Further analysis reveals that higher levels of happiness are positively and significantly associated with higher expenditures on basic living goods, education and gifts. We also find that both household income and access to the Internet boost happiness and increase consumption expenditure. Happiness plays a larger role in improving the consumption expenditure of rural households compared with their urban counterparts. Our findings may suggest that improving rural income via income diversification strategies and investing in rural information and communication technology infrastructures would encourage rural farmers’ happiness, promote the upgrading of rural consumption and boost sustainable economic growth.