Publication Date: October 2015
Revision Date: March 2016
We test for the long-term eﬀects of experience during youth on consumption in nontraditional taste-forming categories. A unique dataset that tracks individuals over twenty years from 1992-2011, residing in nine Chinese provinces that vary widely in both income levels and rate of economic growth, helps us identify cohort and intra-cohort “prosperity-inyouth” (PIY) eﬀects on consumption. We ﬁrst demonstrate that non-traditional category consumption increases strongly among cohorts that entered adulthood during China’s boom years. We then show evidence of the intra-cohort PIY eﬀect, controlling for individual level experience by leveraging the heterogeneity in the timing and rate of growth in prosperity across Chinese provinces. We ﬁnd that the PIY eﬀect has two dimensions– a direct eﬀect of one’s own prosperity and an indirect eﬀect of the prosperity of one’s province during youth. The indirect eﬀects suggest that norms and aspirations created by the consumption of nontraditional categories by the surrounding rich during one’s youth have signiﬁcant impact on long-term consumption—almost the same magnitude as the direct eﬀect. We conduct a large number of robustness checks; in particular, we rule out potential supply side and attitude based explanations for the PIY eﬀect. Our results imply that segmentation and consumption forecasts based on birth cohorts and experience of prosperity can be eﬀective for taste forming non-traditional products in emerging markets.
Cohort eﬀects, Lifecycle eﬀects, Emerging markets, China, Prosperity in youth, Impressionable years hypothesis, Long-term eﬀects
JEL Classification Codes: M310, D120, F610