Using consumption structure data and generalized method of moments,this paper analyzes internal and external habit formation of consumption of rural residents in Hubei Province.The findings show that on the one hand,consumption of rural residents in Hubei shows negative internal habit formation in the food,household appliances and services and housing expenditures ,and shows positive internal habit formation in educational and cultural recreation,but it is insignificant in other items.On the other hand,consumption of urban residents shows positive demonstration effects on rural residents in transport and communications，health care and medical services,and is negative in housing and clothing expenditures ,but it is insignificant in other items.Consumption of rural residents is beginning to show a rational character,but it is not mature.