The detrimental effects of luxury goods consumption on socially excluded groups

• Date: 01 November 2018
• Author: Kenneth Chan,Vijay Mohan,Bharat Hazari
• Published date: 01 November 2018
• DOI: http://doi.org/10.1111/rode.12524

REGULAR ARTICLE

The detrimental effects of luxury goods

consumption on socially excluded groups

Kenneth Chan

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Bharat Hazari

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Vijay Mohan

3

1

McMaster University, Hamilton,

Ontario, Canada

2

City University of Hong Kong, Hong

Kong

3

Lattice Analytics Pty Ltd, Australia

Correspondence

Vijay Mohan, Lattice Analytics Pty Ltd,

Melbourne, Australia.

Email: vijay.mohan@outlook.com

Abstract

This paper examines the impact of luxury goods con-

sumption by the wealthy on the welfare of socially

excluded groups. We find that a deterioration in the lux-

ury goods terms-of-trade or an increase in the capital

used to produce nonluxury traded goods have the conse-

quence of increasing the welfare of the wealthier sections

of society at the expense of the socially excluded groups.

When the quasi-peaceable stage of industry is reached, with its fundamental institu-

tion of chattel slavery, the general principle, more or less rigorously applied, is that

the base, industrious class should consume only what may be necessary to their sub-

sistence. In the nature of things, luxuries and the comforts of life belong to the leisure

class. Veblen (1899)

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INTRODUCTION

Trade and consumption of luxury goods are age-old phenomena. For example, during the Middle

Ages long distance trade between Europe, North Africa, and Asia involved large volumes of goods

considered luxuries at that time: silk, spices, ivory, gems, and precious metals. Consumption of,

and trade in, luxury goods has continued unabated over the centuries. Evidence suggests that in

the period between 1995 and 2013 there was a 350% increase in the number of consumers of lux-

ury goods globally (D’Arpizio & Levato, 2014).

Perhaps more interestingly, the developing economies in Asia and Latin America along with

the emerging economies in Eastern Europe account for roughly 40 percent of the global luxury

market. This is only set to grow over time. A report by The Economist Intelligence Unit (2013)

suggests that Asia alone will account for 50 to 60 percent of global revenues in luxury goods

sales, with China and India contributing to a large proportion of that growth. Unlike the tim e that

Veblen wrote his thesis on conspicuous consumption and the centuries that preceded it, luxury

goods consumption is no longer limited to the aristocratic or leisure class; increasingly, luxury

good consumption is undertaken by the middle class. In developing countries like China and India,

the aspirational desire to engage in the consumption of luxury goods is well documented.

DOI: 10.1111/rode.12524

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©2018 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/rode Rev Dev Econ. 2018;22:e228–e238.