Empirical analysis of consumption in Mexico : determinants, beneficiaries and the effects of inequality

Palacios-Rodriguez, Roberto

Abstract

Mexico has lived through several episodes of economic and social unrest during the 1970s, 1980s, and the 1990s. Since then the country has embraced a free-trade agenda and has eventually established itself as a strong manufacturing centre. GDP per capita has kept growing almost steadily, and so has the level of consumption per capita. At the same time Mexico has experienced a modest reduction in income inequality.

This piece of research was aimed at identifying the main determinants of consumption as well as to find out if the benefits of increased consumption have been distributed similarly among different groups of the Mexican society. Its main contribution is the decomposition of consumption by different cohorts of society—age cohorts, income deciles, regional trends, or consumption determinants—in order to evaluate how consumption has evolved in general and if significant sub-group differences exist.

The empirical work presents the empirical analysis of time series data on consumption and different consumption determinants. The empirical evidence confirms the long-run equilibrium relationship between consumption, income, and wealth. The results indicate how income, the wealth components and the value-added output from the manufacturing sector have had a role in steering consumption over the past 57 years.

The empirical analysis of pooled micro-level datasets found support to the consumption-puzzle postulate. Income distributional differences were found to exist in terms of the life cycle consumption profile. While the richer cohorts of the population have been able to reduce consumption before retirement age, the poorer deciles have not been able to afford to reduce consumption and increase savings until they have gone well into the later stages of the life cycle.

The analysis of the pooled microeconomic dataset has found significant distributional differences associated with over time changes in income inequality. The cohorts of the population in the middle part of the distribution do benefit by increased consumption levels when inequality reduces. Given the way inequality has reduced in Mexico—reductions in returns from financial wealth for the richer cohorts—it came as a little surprise to find that inequality reductions have not benefitted households at both ends of the income distribution: the poorer most, nor the richer ones.

Relevant for public policy is the fact that specific measures have to be put in place to help the poorer households as they reach retirement age when their consumption levels have been found to reduce drastically.

Citation

Palacios-Rodriguez, R. (2020). Empirical analysis of consumption in Mexico : determinants, beneficiaries and the effects of inequality. (Thesis). University of Hull. Retrieved from https://hull-repository.worktribe.com/output/4223100

• Thesis Type: Thesis
• Deposit Date: Apr 9, 2021
• Publicly Available Date: Feb 23, 2023
• Keywords: Business; Economics
• Public URL: https://hull-repository.worktribe.com/output/4223100
• Additional Information: Business School, The University of Hull
• Award Date: Jul 1, 2020