Human Capital and Conspicuous Consumption

Abstract

Strengthening purchasing power, stimulating consumer confidence, and improving the structure and standards of consumption are essential for China's successful economic development. Human capital is linked to income, wealth, social status, and cognitive preferences, and plays a long-term role in consumption growth. This study explored the impact of human capital on conspicuous consumption in China, using a novel individual-level measure – the visibility index – to capture conspicuous consumption. Drawing on data from the China Family Panel Studies (2012–2020), a comprehensive human capital index was constructed by combining cognitive and noncognitive abilities through the entropy weight method. To address potential endogeneity, the historical distribution of Confucian temples and ancient academies was used as an instrumental variable for human capital. The empirical results show that improvements in human capital can significantly increase conspicuous consumption, particularly among middle-income groups, rural residents, and nonagricultural workers. A key contribution of the study is the clear identification of social status signaling as the primary mechanism linking human capital to conspicuous consumption. These findings offer new insights into consumption behavior and human capital development in China's increasingly complex and rapidly evolving socioeconomic landscape.