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China's New Rural Income Support Policy: Impact on Grain Production and Rural Income Inequality

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  • Heerink, Nico
  • Kuiper, Marijke H.
  • Xiaoping, Shi

Abstract

The impact of China's new rural income support policy and recent price trends on grain production and rural income inequality is assessed for two villages with different degrees of market access in Northeast Jiangxi Province. Two village-level general equilibrium models are used to analyze household decision making and interactions between households within these villages. Parameter estimation and model calibration is based on data collected during an extensive survey held in these villages in the year 2000. The household classification used in these models allows us to draw conclusions that are relevant for many other villages and regions in China. Simulation results show that the income support policy does not reach its goal of promoting grain production. The increased incomes allow farm households to buy more inputs for livestock production, which is a more profitable activity. Moreover, because leisure is valued higher with increasing incomes, farmers tend to switch to less intensive rice production. Selling of rice outside the villages declines more than rice production due to the higher own consumption of households. We further find that agricultural tax abolition has a much larger impact on incomes and production than the direct income support in 2004. Both measures tend to reduce income inequalities within villages, because the richest household groups (who are more involved in off-farm employment) benefit less. Tax abolition, however, tends to widen income inequalities between villages, because the absolute income gain is much larger in relatively rich villages. The switch from rice production towards more profitable activities like livestock production is therefore much stronger in these villages.

Suggested Citation

  • Heerink, Nico & Kuiper, Marijke H. & Xiaoping, Shi, 2006. "China's New Rural Income Support Policy: Impact on Grain Production and Rural Income Inequality," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25625, International Association of Agricultural Economists.
  • Handle: RePEc:ags:iaae06:25625
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    References listed on IDEAS

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    1. Bowlus, Audra J. & Sicular, Terry, 2003. "Moving toward markets? Labor allocation in rural China," Journal of Development Economics, Elsevier, vol. 71(2), pages 561-583, August.
    2. Albert Park & Hehui Jin & Scott Rozelle & Jikun Huang, 2002. "Market Emergence and Transition: Arbitrage, Transaction Costs, and Autarky in China's Grain Markets," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 67-82.
    3. Hans Löfgren & Sherman Robinson, 1999. "Nonseparable Farm Household Decisions in a Computable General Equilibrium Model," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 663-670.
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    Citations

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    Cited by:

    1. Wang, Xiaxin & Shen, Yan, 2014. "The effect of China's agricultural tax abolition on rural families' incomes and production," China Economic Review, Elsevier, vol. 29(C), pages 185-199.
    2. Jim Hansen & Francis Tuan & Linxiu Zhang & Agapi Somwaru, 2011. "Do China's agricultural policies matter for world commodity markets?," China Agricultural Economic Review, Emerald Group Publishing, vol. 3(1), pages 6-25, January.
    3. Ding, Shijun & Meriluoto, Laura & Reed, W. Robert & Tao, Dayun & Wu, Haitao, 2011. "The impact of agricultural technology adoption on income inequality in rural China: Evidence from southern Yunnan Province," China Economic Review, Elsevier, vol. 22(3), pages 344-356, September.
    4. repec:wyi:journl:002171 is not listed on IDEAS
    5. Yi, Fujin & Sun, Dingqiang & Zhou, Yingheng, 2015. "Grain subsidy, liquidity constraints and food security—Impact of the grain subsidy program on the grain-sown areas in China," Food Policy, Elsevier, vol. 50(C), pages 114-124.
    6. Meng, Lei, 2012. "Can grain subsidies impede rural–urban migration in hinterland China? Evidence from field surveys," China Economic Review, Elsevier, vol. 23(3), pages 729-741.
    7. Tian, Qing & Holland, John H. & Brown, Daniel G., 2016. "Social and economic impacts of subsidy policies on rural development in the Poyang Lake Region, China: Insights from an agent-based model," Agricultural Systems, Elsevier, vol. 148(C), pages 12-27.
    8. Shijun Ding & Laura Meriluoto & W. Robert Reed & Daoyun Tao & Haitao Wu, 2010. "The Impact of Agricultural Technology Adoption of Income Inequality in Rural China," Working Papers in Economics 10/41, University of Canterbury, Department of Economics and Finance.
    9. Yi, Fujin & Sun, Dingqiang, 2014. "Grain Subsidy, Liquidity Constraints and Food security—Impact of the Grain Subsidy Program on the Grain-Sown Areas in China," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169779, Agricultural and Applied Economics Association.
    10. Zhang, Yingqiang & Eriksson, Tor, 2010. "Inequality of opportunity and income inequality in nine Chinese provinces, 1989-2006," China Economic Review, Elsevier, vol. 21(4), pages 607-616, December.
    11. Li Jiang & Yonghui Zhang, 2016. "Modeling Urban Expansion and Agricultural Land Conversion in Henan Province, China: An Integration of Land Use and Socioeconomic Data," Sustainability, MDPI, Open Access Journal, vol. 8(9), pages 1-12, September.
    12. Binjian, Binjian & Sakamoto, Hiroshi, 2013. "Market Reform and Income Distribution in China : A CGE–Microsimulation Approach," AGI Working Paper Series 2013-13, Asian Growth Research Institute.
    13. Bennett, Michael T. & Mehta, Aashish & Xu, Jintao, 2011. "Incomplete property rights, exposure to markets and the provision of environmental services in China," China Economic Review, Elsevier, vol. 22(4), pages 485-498.

    More about this item

    Keywords

    income policy; grain production; income inequality; villages; CGE model; China; Consumer/Household Economics; Crop Production/Industries; O20; Q12; R15;

    JEL classification:

    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods

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