Agricultural Financial Policies in China, 1949-80

Abstract

IT IS WIDELY accepted among development economists that at an early stage of development in a developing country, a financial inflow into agriculture from the rest of the economy is essential for accelerating agricultural development.' Where agricultural productivity is low, the surplus over the minimum consumption generated by agriculture will also be very low. Consequently, rural savings alone will not be sufficient for the purchase of modern agricultural inputs and for the financing of investment projects, both of which are essential to agricultural development. Under such circumstances, the government can play an important role in promoting agricultural development, not only by sponsoring the research and development of better agricultural technology but also by transferring resources from the rest of the economy to agriculture through agricultural loans, government expenditures and investment in rural areas, and improvement in the terms of trade between agriculture and industry. Even within the rural areas themselves, to the extent that the peasants' incentives to produce are not adversely affected, the government can use fiscal and monetary policies to increase rural savings for agricultural investment. Once agricultural productivity is raised and agricultural development accelerated, the rest of the economy will invariably benefit from it in various ways: an increased supply of food for the non-agricultural popu-