Reforms, incentives, welfare and productivity growth in Chinese wheat production

Reforms, incentives, welfare and productivity growth in Chinese wheat production
Document type
Working Paper
Author(s)
Patel, Vasita; Selim, Sheikh
Publisher
Cardiff Business School
Date of publication
1 December 2010
Series
Caediff Economics Working Papers
Subject(s)
Trends: economic, social and technology trends affecting business
Collection
Business and management
Material type
Reports

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Using a dataset covering all the major rural reforms undertaken in China, this paper examines how and to what extent these reforms affected the productivity and welfare of wheat farmers in the country. 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 1990s 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. The paper finds that the 1990s 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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