Does Farmland Tenancy Improve Household Asset Allocation? Evidence from Rural China

Abstract

In an agricultural society, the farmland is a major form of national wealth and an increase in farmland holding is a sign of wealth accumulation; whereas in an industrial society, the question of whether a rise in farmland holding also increases the wealth accumulation of farmers with the possible choice of being migrant workers is worth theoretical discussion and empirically testing. This article explores the issue of whether farmland tenancy affects household asset allocation in a rapid industrialization period. Using a sample of China’s rural households with land contract rights, we employed propensity score matching (PSM) with a difference-in-difference (DID) approach to explore and estimate the impact of farmland tenancy on tenant household asset allocation and test the mechanism of farmland tenancy affecting household asset allocation. Four conclusions are drawn from our study. (1) There is a ‘herd effect’ in the household decision-making in participation in the farmland rental market and the tenancy of farmland. (2) Household asset choice behavior is adjusted in response to the farmland tenancy for the tenants, increasing the investment in durable goods assets. (3) There is heterogeneity in the effects on asset allocation between tenant households with different intensities in farmland tenancy, presenting relatively more substantial impacts on the change of asset allocation for tenant households with high intensity in the farmland rental market. The tenancy of farmland with high intensity has not only boosted tenants’ wealth accumulation but has also increased the investment in agricultural assets and risky asset holdings (both incidence and the share of risky financial assets), while the tenancy of farmland with low intensity has not. Tenancy of farmland does not necessarily bring about an increase in the household’s agricultural machinery investment, and only when the area of farmland tenancy reaches a certain scale threshold will households increase their investment in agricultural machinery. (4) The tenancy of farmland has had impact on household asset allocation through a substitution effect instead of an income effect. In general, even though agriculture is not so profitable compared to industry in China, the wealth effect of farmland holding remains significant. This study contributes to the research on household asset allocation from the perspective of farm operation model transition caused by farmland market participation, which helps enhance income and accumulate wealth of rural households in China as well as other developing countries.

Multi-level determinants of land use land cover change in Tigray, Ethiopia: A mixed-effects approach using socioeconomic panel and satellite data

“…Literature on the spatial land allocation theory [ 48 – 50 ], postulates that land is divided between alternative uses according to the highest land rent obtainable, given the land’s special characteristics with regards to location and physical conditions. However, in Ethiopia, land is publicly owned and hence land markets do not exist effectively and land prices reflecting the land rent of a particular land quality class in alternative uses are not available [ 51 ].…”

Untitled

“…Theoretical model. Literature on the spatial land allocation theory [48][49][50], postulates that land is divided between alternative uses according to the highest land rent obtainable, given the land's special characteristics with regards to location and physical conditions. However, in Ethiopia, land is publicly owned and hence land markets do not exist effectively and land prices reflecting the land rent of a particular land quality class in alternative uses are not available [51].…”

Untitled

“…Theoretical model. Literature on the spatial land allocation theory [48][49][50], postulates that land is divided between alternative uses according to the highest land rent obtainable, given the land's special characteristics with regards to location and physical conditions. However, in Ethiopia, land is publicly owned and hence land markets do not exist effectively and land prices reflecting the land rent of a particular land quality class in alternative uses are not available [51].…”