Measuring cross‐country material wellbeing and inequality using consumer durables
| DOI | http://doi.org/10.1111/sjpe.12237 |
| Author | Sean Hyland,Arthur Grimes |
| Date | 01 July 2020 |
| Published date | 01 July 2020 |
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wileyonlinelibrary.com/journal/sjpe Scott J Polit Econ. 2020;67:248–271.
© 2019 Scottish Econ omic Society
1 | INTRODUCTION
Adam Smith argu ed that “consumption is the s ole end and purpose of p roduction” (Smith , 1904, Vol II, Book IV, Ch.
8, p. 159). This principl e is often forgotten; mac roeconomic indicato rs of production an d income enjoy wide use as
inter‐ and intra‐country welfare metrics in spite of well‐documented limitations (Meyer & Sullivan, 2003; Slesnick,
2001; Stiglitz , Sen, & Fitoussi [SSF], 20 09). There remains a need to acc urately quantify the co nsumption aspects
of material wellbe ing, especially in cross‐count ry contexts. Without d ownplaying the importa nce of non‐market
Accepted: 17 Octo ber 2019
DOI: 10 .1111/sjpe.1 2237
ORIGINAL ARTICLE
Measuring cross‐country material wellbeing and
inequality using consumer durables
Arthur Grimes1,2 | Sean Hyland1,3
1Motu Economic a nd Public Policy
Research, Wellington, New Zealand
2Victoria Un iversity of Welling ton,
Wellington, N ew Zealand
3Columbia Uni versity, New York, NY, USA
Correspondence
Arthur Gr imes, Motu Economi c and Public
Policy Resea rch, PO Box 24390, Wellin gton
6142, New Zealand.
Email: arthur.grimes@motu.org.nz.
Funding information
Royal Societ y of New Zealand Marsd en
Fund, Grant/Award Number: MEP1201
Abstract
We measure the mean and ine quality in countr y material
wellbeing based on hou seholds’ consumer dur ables, using
household‐level dat a from OECD’s PISA surveys for 40 coun‐
tries over 200 0–2012. Our consumption‐based mea sures
capture aspec ts of material wellbeing n ot captured fully by
income‐based measur es. For 2012, tests sh ow that the con‐
sumption‐based metr ics are more closel y associated with
objective mor tality‐related outcomes than are i ncome‐based
measures; in 200 0 (and over 2000–2012) each set of me as‐
ures adds informatio n relative to the other. The consumption‐
based measures may be pa rticularly useful in reveal ing where
income‐based measur es provide inaccurate indicat ions of the
mean and/or inequality in household living standards.
KEYWORDS
material wellbei ng, inequality, consumer d urables, gross nationa l
income, Gini coefficient
JEL CLASSIFI CATION
E01; I31; I32
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GRIMES and HY Land
wellbeing fac tors such as health, educati on and environmental outcomes ( included, for example, in the U NDP’s
Human Developm ent Index and the OECD’s Bet ter Life Index), our focu s is to extend the cross‐coun try consump‐
tion‐based mea surement of material wellb eing. We test how our consumpt ion‐based material well being measures
compare with inc ome‐based measures, an d examine the relationshi p of each set of measures with obj ective mor‐
tality‐relat ed outcomes across countri es and across time.
We derive a (mean) materia l wellbeing index (MWI), plu s distributional me asures, based on durab les consump‐
tion for 40 count ries over the period 200 0–2012. In this respe ct, our paper can be seen a s a complement to the
work of Jones and K lenow (2016) who base their micro‐data c ross‐country analysis on consu mption of non‐du‐
rables and ser vices. As we discuss sub sequently, a measure based on du rables consumption has ad vantages both
relative to a measur e based on non‐durable s and services and one b ased on income when hous eholds can choose
to allocate thei r labour over both ma rket and non‐market a ctivities ( Apps & Rees, 20 09). Consistent wit h this
observatio n, Atkinson (2015) highlights t he importance of includ ing services from dura bles consumption if using
a consumption‐based material wellbeing measure.
Our framewor k is influenced by the reco mmendations of SSF for t he measurement of wellb eing. These include
placing a greater f ocus on consumpti on and wealth (inc luding consumer d urables) whils t concentrating l ess on
production , and accounting f or their respec tive distrib utions. Our mea sures bear expe cted relation ships with
other material we llbeing measures, such as GNI p er capita and the Gini coef ficient of income, but there are a lso
some substantive differences.1 These differences in dicate that new inform ation on cross‐countr y material wellbe‐
ing is introduced through consideration of (durables) consumption in addition to income.
We test how closely ou r consumption‐ba sed measures rel ate to a range of objec tive mortal ity measures i n
comparison wit h more typically u sed income‐related va riables (GNI per cap ita and the Gini coef ficient of income).
In cross‐secti onal terms, our mean and di stributional consum ption‐based measures h ave closer associations wit h
mortalit y outcomes in 2012 th an do the convention al income‐base d measures; but for 2 000 and for ch anges
(over twelve years) ea ch of MWI and per capita GNI are p referred for certain mo rtality‐related outco mes. Thus,
while not complet ely replacing income‐ba sed measures, a consumpti on‐based approach doe s contribute new in‐
formation at a cros s‐country level over and above t hat provided by income meas ures. As we note in our conclu d‐
ing section, t he cross‐country differe nces highlighted by our measures (r elative to the income‐based meas ures)
appear to accord we ll with casual observati on of mean living standards a nd degrees of inequality a cross certain
countries. The consumption‐based measures may therefore be particularly useful in revealing where income‐
based measure s give potentially flawed est imates of the mean or inequal ity in household living s tandards.
A key difficult y for any cross‐country consump tion‐based approach is to obta in comparable data across cou n‐
tries, espe cially on an inter‐tempora l basis. For our empir ical applic ation of the frame work, we utilise ho usehold
possession dat a from the OECD’s Programm e for International Stud ent Assessment (PISA ) surveys. The prim ary aim
of these survey s is to analyse the abilities a nd attitudes of 15‐year‐old stud ents across 75 economies, wi th surveys
conducted tr iennially begin ning in 200 0. Supplement ary quest ions on the home env ironment were inc luded to
consider the dete rminants of educatio nal achievement; quest ions refer to the presence of an a rray of cultural, edu‐
cational and s tatus goods. These que stions cover only a subset of all ho usehold consumption ite ms and so we have
an imperfec tly observed set of consu mption goods. Applying o ur theoretical framewo rk to these data, we derive a
measure of House hold Material Wellb eing (HMW). We then ma p HMW into three ag gregate series: M WI, which
represents t he country‐year mean of HMW; and t wo measures of inequalit y: the Gini coefficie nt of HMW, and the
Atkinson Inequ ality Measur e (AIM), which des cribes the deg ree of inequalit y in the countr y‐year–specific HMW
distribution (Atkinson, 1970).2
1 Similarly, Jon es and Klenow (2 010) find that whil e GDP per capit a is a useful overa ll proxy for non‐ durables cons umption‐equ ivalent welfa re, there
are some mater ial differen ces in the measur es across count ries.
2 In related wor k, we also constr uct an inequa lity adjuste d measure of natio nal material wel lbeing using th e MWI and AIM measu res – see Grime s
and Hyland (2 015) [G&H].
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