Rural Reforms, Structural Change and Agricultural Growth in the People's Republic of China

Abstract

Though the focus of this work has been on the contribution of structural change to agricultural growth, a discussion of how the rapid structural change occurred since 1978 is included. Based on the results of the econometric analysis, it seems reasonable to conclude that the structural change-growth connection is positive and the growth in agriculture since 1978 can be explained partly by structural change. The interpretations of these results are consistent, in general, with those observed empirically in Table 3. The marginal labor productivity of the noncropping sector is higher than that of the cropping sector. The consequent reallocation of labor from the cropping into the noncropping sector contributed to agricultural growth. Thus, the recent expansion of the noncropping sector had a positive allocation effect on agricultural growth in addition to a positive externality effect on the growth of the cropping sector. This result reinforces the view that, for less developed countries such as the PRC, it is useful to consider the linkage between structural change and growth instead of relying on the equilibrium approach. The situation of a labor surplus suggests the need to be cautious in interpreting the importance of shifting labor out of cropping during the slowdown in cropping since 1984. The signifi¬cance of TVEs in the parameter estimates of the linkage of policy-structural change suggests the importance of TVEs in creating jobs in rural PRC. By 1992, the rapid expansion of the TVE sector provided 67.8 million jobs for PRC farmers and its impact on the expansion of the noncropping sector has contributed to the reduction of labor surplus on the land. Since the employment opportunities created by TVEs failed to match the growth of the rural labor force and there is unemployment and underemployment in the urban sector, agriculture will continue to be the main sector of rural employment. Because of the land constraint in agriculture, the importance of noncropping activities as a source of rural employment and income cannot be underestimated. This study has shown that the low land-labor ratio and the increasing effective demand, in particular, because of the expansion of TVEs, could have been the main driving force behind the rapid structural change in the PRC's agriculture. Since the effective demand is potentially important in determining the prospect of the noncropping sector, further research is required to assess the effectiveness of government policies affecting income, tastes, the market system, and production linkages.