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Expansion of Household Consumption and Formation of a Unified Market: “Home Market Effect” in China

【Authors】
ZHANG Hao
【WorkUnit】
National Academy of Economic Strategy, CASS, 100028.
【Abstract】

The household consumption expansion promotes cross-regional trade of commodities, which is part of the internal motivation for domestic market integration. In order to achieve economies of scale, enterprises can locate their production close to the regions with large consumer markets, and improve commodity quality through deepening division of labor. As a result, final commodities and intermediate goods flow from developed regions to other regions, which is the “Home Market Effect” at home arising from the division of labor based on the value chain. Under specific circumstances, the expansion of consumption scale in a region will also promote the inflow of foreign consumer goods, but its impact on the inflow of intermediate goods depends on whether the market of other regions is large or not. Based on the provincial economic data from 2001 to 2015 and the input-output table data in 2007 and 2012, the empirical analysis shows the overall situation about how consumption promotes domestic market integration and the mechanism about how consumption bolsters cross-regional economic ties by affecting the division of labor. The conclusion of this paper sheds light on the organic relationship between stimulating household consumption and increasing product supply so as to bring the role of the large domestic market into better play.

 

JEL:D11, M21, O24

【KeyWords】
Household Consumption, Cross-Regional Trade of Commodities, Unified Market, Home Market Effect