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Grain into Gold? The Impact of Agricultural Income Shocks on Rural Chinese Households

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This paper analyzes whether there is evidence of a poverty trap driven by credit constraints and non-linearities in the return to capital in rural China in the 1990s, estimating the effect of positive income shocks experienced by rural households as a result of increases in the price paid for mandatory grain quota sales. Households were required to sell part of their grain output to the state at a below-market price, and increases in the quota price generated income shocks that also varied cross-sectionally in accordance with crop composition. The identification strategy exploits climatically driven variation in crop composition in conjunction with quota price fluctuations to identify quasi-random variation in the size of the positive income shock and estimate its impact on economic outcomes. The results suggest agricultural investment decreases and investment in non-agricultural businesses and migration increase as households gain increased income, consistent with a poverty trap in which households are initially constrained from entering new productive sectors. There is also evidence of large increases in consumption and borrowing.

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  • Jessica Leight, 2016. "Grain into Gold? The Impact of Agricultural Income Shocks on Rural Chinese Households," Department of Economics Working Papers 2016-13, Department of Economics, Williams College.
  • Handle: RePEc:wil:wileco:2016-13
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    1. Paula Bustos & Bruno Caprettini & Jacopo Ponticelli, 2016. "Agricultural Productivity and Structural Transformation: Evidence from Brazil," American Economic Review, American Economic Association, vol. 106(6), pages 1320-1365, June.
    2. Jikun Huang & Scott Rozelle & Honglin Wang, 2006. "Fostering Or Stripping Rural China: Modernizing Agriculture And Rural To Urban Capital Flows," The Developing Economies, Institute of Developing Economies, vol. 44(1), pages 1-26, March.
    3. Jikun Huang & Yunhua Wu & Scott Rozelle, 2009. "Moving off the farm and intensifying agricultural production in Shandong: a case study of rural labor market linkages in China," Agricultural Economics, International Association of Agricultural Economists, vol. 40(2), pages 203-218, March.
    4. repec:ags:irricg:281821 is not listed on IDEAS
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