Advance or face: Which makes Chinese entrepreneurial households spend more on education?

In accordance with the traditional ranking of “scholar, farmer, artisan and merchant” in China, entrepreneurs are characterized as having lower social status, and are driven by face consciousness to engage in conspicuous consumption. Education is not only a human capital investment but also a conspicuous consumption good. This study aims to investigate how entrepreneurial households manage their education expenditure differently from non-entrepreneurial households and what the underlying mechanism is.

Using Chinese Household Finance Survey 2011 data, this study empirically examines the education expenditure differentials between entrepreneurial and non-entrepreneurial households. Regression analyses on matched samples are carried out and the results are quite robust across different model specifications.

On the basis of the empirical analysis, this study finds that entrepreneurial households annually spend 19.30 per cent more on education than non-entrepreneurial households. The empirical results provide no evidence that education generates a greater increase in income for entrepreneurial households than for their non-entrepreneurial counterparts, which indicates that the education expenditure differentials do not result from different income returns to education. The findings show that education is a conspicuous good and the gap in education expenditure is partially attributable to different demands for the conspicuous consumption, which results from different face consciousness between the two kinds of households.

The results of this study reveal the significance and economic consequences of face consciousness for entrepreneurial households from the perspective of education.