Off-farm employment growth and agricultural land consolidation in China

Abstract

The history of now-developed countries implies a common transformation path of economic development. That is, within an economy, as wage grows in non-farm sectors, labour migrates out of agriculture. With fewer workers, agricultural land resources may concentrate into the hands of fewer but larger farm operations (agricultural land consolidation), with more investment and higher production specification. However, the development process of China is less likely to trace the same path as it does in these countries, given its distinctive institutions. To examine the development process in the unique context of China, this dissertation focuses on two questions: (1) how do China’s rural workers self-select into off-farm employment (OFE)? (2) How does agricultural land consolidation occur in China? In addressing the first question, I use Roy’s self-section model to analyze the following three occupational choices of China’s rural residents: farming only, local OFE, and migratory OFE. Based on household survey data from 101 communities in rural China in 2004 and 2007, the empirical results show that individual and household characteristics are important self-selecting factors for OFE participation. More importantly, I find that the increase of OFE in China is largely consistent with market-driven expectations. In addressing the question of whether and why the consolidation of farm operations develops in China’s agriculture, I assess the divergence between the size of farm operations from equal entitlements. The theoretical model predicts that a higher opportunity cost of farm labour, in the form of the urban wage, exerts a positive influence on consolidation of farm operations through rental arrangements. A Gini index is used to measure the inequality of farmland operations relative to equal farmland entitlements, with greater inequality being consist with higher consolidation of farm operations. Empirical results support the theoretical prediction, specifically, a 1000-yuan increase in the annual urban wage, holding all other influences constant, increases the Gini index by 0.012 (mean=0.26) over the 2004-2007 period.