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<p>In the contemporary world, particularly in developing regions like Sub-Saharan Africa (SSA), where collectivist and socially interconnected living arrangements are predominant, neighbors remain highly aware of one another’s affairs. Within this context, either for the pursuit of material gain or display of social status, it is not unreasonable to expect the individual in the region to follow the consumption patterns of their close relatives. This study, therefore, revisits Duesenberry’s once-prominent but now largely overlooked <i>Relative Income Hypothesis</i>, using 28&#xa0;years of panel data from 29 SSA countries categorized into three income groups. Specifically, it examines whether Duesenberry’s <i>Demonstration</i> and <i>Ratchet</i> effects shape consumption behavior in the region. The findings from the Dynamic Ordinary Least Squares (DOLS) regression analysis revealed that while the original relative income hypothesis holds true in Lower-Middle-Income SSA countries, the modified version is applicable in both Lower- and Upper-Middle-Income groups. Notably, the study validated Duesenberry’s Demonstration effect, which indicates how the relatively poor consume more to “keep up with the Joneses” (the relatively rich), while higher income groups consume less as their relative income increases. The study also illustrated how past consumption habits (Ratchet effect) have a positive relationship with the average propensity to consume (APC). Finally, by providing a fresh insight into consumption literatures, the study confirmed why APC could remain stable over time not only due to independent but also interdependent consumption decision. Therefore, in such economies where socially determined consumption decisions are visible, policymakers should be cautious with consumption policies centered solely on income, as they could potentially foster wasteful competitions.</p>

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Keeping Up with the Joneses: Panel Evidence on the Relevance of Duesenberry’s Demonstration and Ratchet Effects in Sub-Saharan Africa

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2025年7月22日

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  • Tazeb Bisset

摘要

In the contemporary world, particularly in developing regions like Sub-Saharan Africa (SSA), where collectivist and socially interconnected living arrangements are predominant, neighbors remain highly aware of one another’s affairs. Within this context, either for the pursuit of material gain or display of social status, it is not unreasonable to expect the individual in the region to follow the consumption patterns of their close relatives. This study, therefore, revisits Duesenberry’s once-prominent but now largely overlooked Relative Income Hypothesis, using 28 years of panel data from 29 SSA countries categorized into three income groups. Specifically, it examines whether Duesenberry’s Demonstration and Ratchet effects shape consumption behavior in the region. The findings from the Dynamic Ordinary Least Squares (DOLS) regression analysis revealed that while the original relative income hypothesis holds true in Lower-Middle-Income SSA countries, the modified version is applicable in both Lower- and Upper-Middle-Income groups. Notably, the study validated Duesenberry’s Demonstration effect, which indicates how the relatively poor consume more to “keep up with the Joneses” (the relatively rich), while higher income groups consume less as their relative income increases. The study also illustrated how past consumption habits (Ratchet effect) have a positive relationship with the average propensity to consume (APC). Finally, by providing a fresh insight into consumption literatures, the study confirmed why APC could remain stable over time not only due to independent but also interdependent consumption decision. Therefore, in such economies where socially determined consumption decisions are visible, policymakers should be cautious with consumption policies centered solely on income, as they could potentially foster wasteful competitions.