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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
    DOI: 10.22004/ag.econ.25625
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    2. 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.
    3. GOH, Chor-ching & LUO, Xubei & ZHU, Nong, 2009. "Income growth, inequality and poverty reduction: A case study of eight provinces in China," China Economic Review, Elsevier, vol. 20(3), pages 485-496, September.
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    5. 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.
    6. Wenting Wang & Longbao Wei, 2021. "Impacts of agricultural price support policy on price variability and welfare: Evidence from China's soybean market," Agricultural Economics, International Association of Agricultural Economists, vol. 52(1), pages 3-17, January.
    7. 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.
    8. 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.
    9. Satoshi KOJIMA, 2010. "Quantitative Assessment of Biofuel Promotion Policy in India: A Dynamic CGE Approach," EcoMod2010 259600093, EcoMod.
    10. 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.
    11. 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.
    12. 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.
    13. 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.
    14. Wenyuan Hua & Zhihan Chen & Liangguo Luo, 2022. "The Effect of the Major-Grain-Producing-Areas Oriented Policy on Crop Production: Evidence from China," Land, MDPI, vol. 11(9), pages 1-28, August.
    15. Xinru Han & Ping Xue & Ningning Zhang, 2021. "Impact of Grain Subsidy Reform on the Land Use of Smallholder Farms: Evidence from Huang-Huai-Hai Plain in China," Land, MDPI, vol. 10(9), pages 1-15, September.
    16. Li Jiang & Zhihui Li, 2016. "Urbanization and the Change of Fertilizer Use Intensity for Agricultural Production in Henan Province," Sustainability, MDPI, vol. 8(2), pages 1-12, February.
    17. 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.
    18. Jie Lyu & Xiaolei Li, 2019. "Effectiveness and Sustainability of Grain Price Support Policies in China," Sustainability, MDPI, vol. 11(9), pages 1-13, April.
    19. 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.
    20. 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, vol. 8(9), pages 1-12, September.
    21. Lijie Song, 2021. "Does Public Investment Promote Intergenerational Mobility? Who Really Benefits?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 158(1), pages 59-80, November.
    22. Luo, Xubei & Zhu, Nong, 2008. "Rising income inequality in China : a race to the top," Policy Research Working Paper Series 4700, The World Bank.

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    More about this item

    Keywords

    Consumer/Household Economics; Crop Production/Industries;

    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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