Feng Shuyi Nico Heerink Ruerd Ruben Land and Labour Market Imperfections and Allocative Efficiency in Chinese Agriculture Feng Shuyi Nico Heerink Ruerd Ruben

Introduction Growing inequality in China: Rural – urban income gap: 1 : 2.2 (1990) → 1 : 3.2 (2005) Strong increase rural inequality since mid-1980s Inequality within villages: Gini = 0.40 – 0.42 (3 villages in Guizhou, 2005) Why do some regions / groups lag behind? Page 2

Introduction Economic theory If factors move freely: marginal returns are equalized labour productivity and p.c. incomes converge between and within regions Rural markets in China: commodity markets increasingly integrated major bottlenecks in factor markets (land, labour, capital) Page 3

Introduction Objective of study: Assess the impact of land and labour market imperfections on allocative (in)efficiency in agriculture at village level Rationale If land and labour market imperfections exist: marginal products of land and labour are determined by own land and labour resources (allocative inefficiency) labour intensity & farm productivity will show inverse relationship with farm size removal of barriers can contribute to efficiency & equity Page 4

Approach Methodology: Household groups distinguished according to participation in land and/or off-farm labour market (migration & local off-farm) Labour intensity in grain production explained for each group from: contracted land size other variables (household characteristics, transaction costs, fixed factors, village dummies) Household groups are allocative efficient if contracted land size has no impact on labour intensity Expectation: only no land & labour market group is inefficient Page 5

Approach Data: Survey among 329 farm households in 3 villages in Northeast Jiangxi Province Relatively poor, major rice producing area Seven household groups distinguished Table 1: Percentage distribution of factor market participation Page 6

Estimated coefficient ‘Contracted land size’ Regression results Labour market Land renting Estimated coefficient ‘Contracted land size’ t-value No -1.92*** -3.54 In 0.13 0.46 Local off-farm -0.68*** -4.03 -0.07 -0.30 Migration -0.34*** -2.65 1.38 Out -0.34 -0.37 Whole sample -0.13** -2.36 ***: significant at 0.01 level; **: significant at 0.05 level Page 7

Regression results Findings: Households that do not participate in land and labour markets are not allocative efficient Households that do not participate in the land market, but do go for off-farm work, are not allocative efficient Hence, these households cannot adjust their off-farm work to the optimal level Allocative inefficiency is higher for local off-farm work (than for migration), and highest for no off-farm work All other household groups are allocative efficient Page 8

Conclusions Major conclusions: Important to take diversity in factor market participation into account in analysing inefficiency In our research area, 45% of the households do not participate in the land rental market & are not allocative efficient Substantial efficiency and equity gains can be made by improving the functioning of markets for rural land (and labour) Page 9

Thank you! (谢谢!) Page 10