Social Learning and Durable Adoptions: Evidence from Rural China

Abstract

Purpose – The effects of social learning and network externalities in the diffusion of a new product imply that there should be local spillovers from existing owners to new adopters in a closely-related community. Using the data from a unique household survey in rural China, this paper examines the importance of local spillovers in the diffusion of two major durable goods, washing machine and refrigerator.

Design/methodology/approach – Based on a 1999 rural household survey of durable goods consumption conducted by the National Bureau of Statistics (NBS) of China, the authors examine the likelihood of rural households adopting a washing machine and a refrigerator during 1998-1999, respectively.

Findings – The estimation results indicate that a household is more likely to buy its first durable good in villages where a large share of households already own one. Further evidence suggests that these patterns are unlikely to be explained by unobserved local characteristics. When examined in more detail, the extent of local spillovers appears to be positively related to the household education level.

Originality/value – First, our study reveals the importance of local spillovers in the diffusion of these two durables. Specifically, 64% of washing machine adoptions during 1998-1999 are due to these spillovers. For refrigerator adoptions, the proportion is 55%. Second, to our best knowledge, we are among the first to test and provide evidence on the interaction between education level and local spillovers based on the learning hypothesis.

Keywords: China, rural households, local spillovers, durable adoptions, washing machine, refrigerator, education level

JEL Classification: D12, L68, O33