The Effect of Off-Farm Employment on Forestland Transfers in China: A Simultaneous-Equation Tobit Model Estimation

Abstract

China's new round tenure reform has devolved collective forests to individuals on an egalitarian basis. To balance the equity-efficiency dilemma, forestland transfers are highly advocated by policymakers. However, the forestland rental market is still inactive after the reform. To examine the role of off-farm employment in forestland transfers, a simultaneous Tobit system of equations was employed to account for the endogeneity, interdependency, and censoring issues. Accordingly, the Nelson-Olson two-stage procedure, embedded with a multivariate Tobit estimator, was applied to a nationally representative dataset. The estimation results showed that off-farm employment plays a significantly negative role in forestland rent-in, at the 5% risk level. However, off-farm activities had no significant effect on forestland rent-out. Considering China's specific situation, a reasonable explanation is that households hold forestland as a crucial means of social security against the risk of unemployment. In both rent-in and rent-out equations, high transaction costs are one of the main obstacles impeding forestland transfer. A remarkable finding was that forestland transactions occurred with a statistically significant factor equalization effect, which would be helpful to adjust the mismatched labor-land ratio and improve the land-use efficiency.

Farmers’ Intentions to Lease Forestland: Evidence from Rural China

“…Similar research findings of factors affecting farmers' participation in forestland transactions have been examined by Hong et al [21]. Zhang et al [22] highlighted the effect of off-farm employment on forestland transfers in China using a simultaneous-equation Tobit model estimation verified that off-farm employment is endogenous to farmer' decision to lease their forestland.…”

“…As such, in reference to a number of studies [15,44] and fieldwork observations, farmers in developing countries also tend to pay little or no attention to the amenity value of forests, hence, we isolated the physical value of the forest and timber yield of forestland in our model. In comparison to other models (i.e., specifically investigating forestland markets in China [22]), our model differs, respectively, in the decomposition of timber profit into terms of revenue and cost. The conceptual model, as representative of households, is assumed to maximize the profit from timber production, as formulated via Equation (1).…”

“…We specified our empirical model specifications upon the conceptual model of framing and existing literature to measure the factors that affect farmers' intentions of leasing forestland (Table 1). Negative impact both on leasing in and leasing out [22,47] Characteristics of the household head Age of the head (age) Ambiguous impact [11,18,19,[45][46][47][48]] Educational level of the head (education) Ambiguous impact [18,46,47] Characteristics of household…”

“…Whether leased in (wea_in) Positive impact [40][41][42] Whether leased out (wea_out) Positive impact [40][41][42] Difficulty in leasing in (easy_in) Positive impact [45] Difficulty in leasing out (easy_out) Positive impact [45] Whether leased in profitable (profit_in) Positive impact [22] Whether leased out profitable (profit_out)…”

“…As such, farmers performing as dominant actors, in leasing forestland usage rights, focalized on their leasing intentions formulates the practicality and significance of this study. The incorporation of this research with existing studies (i.e., investigating development of the forestland market based on studies of farmers' lease behaviors [19,21,22]) presents a more complete approach in predictive development of the forestland lease market in China. A conceptual model and econometric approach are presented in Section 2.…”