WP02/2007

Consumption patterns and the black middle class: The role of assets

Stellenbosch Working Paper Series No. WP02/2007

Author(s): Sihaam Nieftagodien, Servaas van der Berg

JEL Classification: D3, D12, D63, J15

Keywords: Market definition, Delineation, Quantitative, Stationarity tests, Prices, Geographic, SSNIP, Hypothetical monopolist, Competition, Unit root, Price ratio, Antitrust

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Abstract:

Black consumption patterns differ from those of whites, even when considering income levels and household size. This applies particularly to the black middle class, the subject of intense public interest. This paper postulates that this difference results not from cultural differences in taste for middle class goods, but from an asset deficit experienced by blacks. We test this hypothesis using regression analysis based on the 2000 Income and Expenditure Survey. Once assets are considered, consumption of middle class goods by blacks even exceeds those of whites. One would then expect blacks to exhibit, compared to whites, (i) an asset deficit, (ii) an asset preference in purchases (to reduce the deficit), and (iii) a lag in consuming other middle class goods (if the asset deficit is not considered). Descriptive evidence, mainly graphical, from the All Media and Products Survey (AMPS) of 2004 provides support for the main hypothesis. This implies that, for black accruals to the middle class, a stage of asset accumulation would precede a stage of middle class consumption. But once assets have been acquired, the shift in consumption may be quite rapid. There may therefore remain two distinct groups of black middle class consumers: The established middle class (currently still quite small), who have accumulated assets and whose consumption patterns therefore would resemble those of whites; and the new middle class, who may prefer spending to acquire assets.