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Reforms, Incentives, Welfare and Productivity Growth in Chinese Wheat Production

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  • Patel, Vasita
  • Selim, Sheikh

    ()
    (Cardiff Business School)

Abstract

Following the rural reform in 1978 a series of agricultural reforms were introduced in China with an aim to create incentives for the farmers to produce more. The nineties. price reform that was aimed at deregulating the agricultural market eventually resulted in a huge drop in agricultural production; this apparently motivated the government to take over the control of agricultural prices in 1998. For a dataset that covers all the major rural reforms undertaken in China, we examine how and to what extent these reforms affected the productivity and welfare of wheat farmers in China. We find that the nineties. price reforms resulted in a high magnitude of effort-response from wheat farmers which led to a faster growth of the incentive component of productivity. Due to random weather shocks this response did not result in the expected level of profit and as a result the farmers suffered a decline in welfare. The regulations introduced in 1998 destroyed the incentive-induced growth in TFP. In general wheat farmers in China responded highly when markets were made more competitive, and their effort-response for flat subsidies (e.g. the ones introduced in the eighties) was very marginal.

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Bibliographic Info

Paper provided by Cardiff University, Cardiff Business School, Economics Section in its series Cardiff Economics Working Papers with number E2010/16.

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Length: 32 pages
Date of creation: Dec 2010
Date of revision: Jan 2011
Handle: RePEc:cdf:wpaper:2010/16

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Keywords: China; Incentives; TFP; Agriculture; Wheat Production;

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  1. Alston, Julian M. & Pardey, Philip G. & Taylor, Michael J., 2001. "Agricultural science policy," Food policy statements 32, International Food Policy Research Institute (IFPRI).
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