Effective Supply, Consumption Upgrade, and Expanding Domestic Demand

Abstract

Addressing the prolonged stagnation in household consumption growth in China is crucial for the successful implementation of the strategy to expand domestic demand. By constructing the upgrading index of consumption structure from 2002 to 2018, it is found that the overall upgrading trend of household consumption structure in China is accelerated after 2014. Theoretical analysis and empirical results indicate that, as household consumption structures rapidly upgrade with rising incomes in China, the primary factor limiting reasonable growth in household consumption is the insufficient effective supply resulting from a mismatch between the supply structure and the demand structure. As the adjustment of the supply structure depends on the continuous optimization of investment flow, expanding effective investment is the key driving force to improve effective supply, and it is also the existing component of expanding domestic demand. Further research shows that weakening investment convergence can significantly alleviate the insufficient effective supply caused by consumption upgrading. Enhancing the scientific anticipation of policy regulations and increasing the effectiveness of investments will be beneficial for realizing the strategy of expanding domestic demand.

Keywords

expanding domestic demand / consumption upgrade / insufficient effective supply / investment convergence

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2024 Higher Education Press