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Estimation of Chinese agricultural production efficiencies with panel data

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  • Hu, Baiding
  • McAleer, Michael

Abstract

Fast and steady economic growth in China during the 1990s attracted much international attention. Given the scarcity of resources, it is important for economic growth to depend on production efficiency improvement to achieve sustainability. As China is the world's second largest foreign capital recipient, foreign capital plays an important role in investment. If economic growth is fuelled by investment, an exodus or a shortage of foreign capital will render growth unsustainable. However, if growth is propelled by improvements in production efficiency, it is more likely to be sustained and to withstand reduction in production input. This paper estimates production efficiency in the agricultural sector in China with a panel data set comprising 30 provinces for the 7-year period, 1991–1997. A panel data model based on the Cobb–Douglas production function is used to represent the production frontier and to compute technical efficiency at the provincial level. Individual effects are tested to determine if pooled estimation is preferred to unpooled (panel) estimation. The test confirms significant differences between the provinces, and hence warrants panel data estimation. Both fixed and random effects models are estimated, with provincial technical inefficiency specified as province-specific intercept terms for the former, and regression disturbances for the latter. Although the random effects model is rejected in favour of the fixed effects model, the latter did not produce estimates with correct signs, and is rejected on economic grounds. Using the random effects model, production efficiency has increased for most provinces, but the gap between the affluent coastal region and the hinterland in the west has increased.

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Bibliographic Info

Article provided by Elsevier in its journal Mathematics and Computers in Simulation (MATCOM).

Volume (Year): 68 (2005)
Issue (Month): 5 ()
Pages: 474-483

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Handle: RePEc:eee:matcom:v:68:y:2005:i:5:p:474-483

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Web page: http://www.journals.elsevier.com/mathematics-and-computers-in-simulation/

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Keywords: Panel data; Production frontier; Time varying; Random effects; Fixed effects;

References

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  1. Li, Hongbin & Rozelle, Scott, 2000. "Saving or stripping rural industry: an analysis of privatization and efficiency in China," Agricultural Economics, Blackwell, Blackwell, vol. 23(3), pages 241-252, September.
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  7. Zhang, Yaoqi, 2002. "The impacts of economic reform on the efficiency of silviculture: a non-parametric approach," Environment and Development Economics, Cambridge University Press, vol. 7(01), pages 107-122, February.
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Cited by:
  1. Huang, Yongfu & He, Jingjing, 2012. "The Decarbonization of China's Agriculture," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  2. Kui-Wai Li & Tung Liu & Lihong Yun, 2007. "Technology Progress, Efficiency, and Scale of Economy in Post-reform China," Working Papers 200701, Ball State University, Department of Economics, revised Apr 2007.
  3. Zhou, Xianbo & Li, Kui-Wai & Li, Qin, 2010. "An Analysis on Technical Efficiency in Post-reform China," MPRA Paper 41034, University Library of Munich, Germany.
  4. Kui-Wai Li & Tung Liu, 2009. "Economic and Productivity Growth Decomposition: An Application to Post-reform China," Working Papers 200904, Ball State University, Department of Economics, revised Sep 2008.
  5. Akbar, Muhammad & Jamil, Faisal, 2012. "Monetary and fiscal policies' effect on agricultural growth: GMM estimation and simulation analysis," Economic Modelling, Elsevier, vol. 29(5), pages 1909-1920.
  6. Kui-Wai Li & Tung Liu & Lihong Yun, 2008. "Decomposition of Economic and Productivity Growth in Post-reform China," Working Papers 200806, Ball State University, Department of Economics, revised Dec 2008.

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