Determinants of Factor Misallocation in Agricultural Production and Implications for Agricultural Supply‐side Reform in China

Abstract

Allocative inefficiency in agriculture is an issue puzzling researchers and policy-makers in China. Based on household data from the China Family Panel Studies of 2012, the present paper quantifies the potential distortions in China's agricultural production and examines their underlying determinants across regions. The results reveal that there are different levels of distortions across regions. The Middle region is facing the greatest distortion. Increases in machinery input, the proportion of non-farm income and effective labor input will reduce distortions. Household saving, farmland rent and farmland size are significantly positively related to distortions. There is a complementary effect between labor and farmland in alleviating production inefficiency, but substitution effects exist between capital and farmland and also capital and labor. The increase in farmland size will aggravate the impact of capital on distortions. Given the constraint of super small-scale farmland, facilitating land transfer is a necessary precondition for improving allocative efficiency.

The role of resource reallocation in promoting total factor productivity growth: Insights from China’s agricultural sector

“…In comparison, the fixed‐effects model estimates show that a 1% increase in the amount of machinery power used per hectare increases resource reallocation by 0.388 × 10 −4 . Farm machinery use can help reduce the misallocation of agricultural resources because it improves input use efficiency and increases labor productivity (Han et al., 2018).…”

“…Reallocating existing resources from low‐productive users to high‐productive users is considered an optimal strategy to help improve resource use efficiency and increase aggregate total factor productivity (TFP) (Abou Hamia, 2020; Frick & Sauer, 2018; Furceri et al., 2021; Guo et al., 2021; Hu et al., 2021; Liu et al., 2021; Peng et al., 2021; Sheng et al., 2017; Wu et al, 2020; Yang et al., 2018). However, the presence of policy distortions and market restrictions has caused resource misallocation and substantial productivity losses (Han et al., 2018; Le, 2020; Liu et al., 2021; Peng et al., 2021). Restuccia (2016) noted that, because agricultural factor markets are imperfect, agricultural production factors are severely misallocated in many emerging countries, and the misallocation leads to significant decreases in agricultural productivity.…”

“…The importance of resource reallocation on productivity growth has been recorded in different sectors such as the manufacturing sector (Kim & Saravanakumar, 2012; Wei & Li, 2017; Wu et al, 2020), energy sector (Guo et al., 2021; Peng et al., 2019), heavy industry sector (Yang et al., 2018), and agricultural sector (Frick & Sauer, 2018; Han et al., 2018; Hu et al., 2021; Sheng et al., 2017, 2020; Shenoy, 2017; Wimmer & Sauer, 2020). Regarding the agricultural sector, the researchers have mainly used farm‐level data to explore the relationship between resource reallocation and productivity growth without considering farm‐specific characteristics associated with geographic locations.…”

Monetary Policies versus Regulatory Policies: Management of Peer to Peer Market Interest Rates

“…In recent years, China has attached great importance to the poverty reduction, the development of agriculture, as well as the improvement of farmers' income (Jia et al, 2017;Han et al, 2018;Wu et al, 2019). The government often adjusts monetary policies to promote the development of agriculture and rural areas.…”

Mechanics of Investment Drivers in Chinese Economy

“…In no time, they have been predicted to likely become the world superpower (Bhaskaran, 2011; Kang, 2018; A. O. Shobande, 2018; R. Xie, Hu, Zhang, & Liu, 2017). Fourth, some studies argue that the transition from traditional sector to more industrialized economy combined with urbanization potential are key drivers of China's investment drive (Han, Li, & Zhao, 2018;Quan, 1991;Shin, 2016; M. Yang & Dixon, 2012;Zhang et al, 2018). Fifth, relatively few studies attempt to tie the drivers of investment to degree of trade openness and quest for globalization, which are expected to reduce economic of scale and enhance more efficient resource allocation (Connell, 2017;Trindade, 2018).…”