Agriculture, Rural Industries, And Peasant Income in China

Abstract

Agricultural reform and liberalization since 1978 paved the way for the unprecedented rapid growth of a dynamic nonagricultural sector in rural China, spearheaded by township and village enterprises (TVEs). Playing an increasingly important role in rural and national economy, TVE development has rapidly improved peasant income and reversed a centuries-long pattern of involutionary growth of output at diminishing marginal labor productivity in the Chinese countryside. Using 1991 county-level data (N=1,883), this paper shows that the nonagricultural sector, pushed by shortage of farmland and fueled by urban economic spillovers, raised peasant income and the spatial inequality of income through enhancing returns to mass education and rural labor supply. It also finds a positive relationship between lagged agricultural output and nonagricultural growth, whereas lagged agricultural output had a weak but significant effect on agricultural growth.