Peer effects on consumption in rural China

This study empirically examines the peer effects of household spending on human affairs, clothing, food, and education in rural China, where villages are often characterized by clan clustering. We employ an iterative algorithm that combines the least square dummy variables regression and instrumental variable estimators to measure the peer effects and their heterogeneity. The results provide compelling evidence for the existence of peer effects on human affairs, clothing, and food expenditures, while the peer effects on education investment come from aligning with high-level spending rather than converging to the average. Furthermore, high- and low-spending households are affected differently by peers and play different roles in the peer group.