The Impact of Financial Market Development on Agricultural Factor Misallocation: Household-Level Evidence from China

Song Liu,Ziling Wang,Mengyuan Yang,Xiongzhi Wang,Łukasz Jankowski

doi:10.1155/2021/9997438

Song Liu, Ziling Wang + Show 3 more

Open Access

https://doi.org/10.1155/2021/9997438

Copy DOI

Abstract

We study the impact of financial market development on the allocation of agricultural factors in China, using national household-level survey data from 2010 to 2014. Our empirical results show the following: (1) the prices of capital and labor are negatively distorted, whereas the price of land is positively distorted; (2) the east region of China has the lowest efficiency of agricultural factor allocation; (3) the breadth of financial market development improves the agricultural factor allocation in all three regions in China, whereas the depth of financial market development only enhances the agricultural factor allocation in the west region of China. Our study presents the very first microlevel evidence on the extent of agricultural factor misallocation in China. Moreover, our results inform policymakers’ choice of prioritizing whether the breadth or the depth of the financial market alleviates agricultural factor misallocation.

Highlights

Our paper contributes to the literature on the impact of financial markets on resource misallocation
Tu (2017) [9] finds that social capital has a limited impact on China’s agricultural productivity using province-level panel data from 1978 to 2014. We contribute to this strand of literature in three significant ways: (1) instead of focusing on a subset of agricultural industries, we examine all agricultural industries to have a broader picture of agricultural factor misallocation; (2) instead of province-level panel data, our nationally representative household-level microdata allows us to control for granular differences across rural households over time; (3) we provide the very first microlevel evidence on the differential impacts of the breadth and depth of rural financial market development on agricultural factor misallocation
Combining the impact of financial market development breadth on three factors, we see that the breadth of financial market has lessened the aggregate agricultural factor distortion (distortion index (DI)) for all three regions in China

Summary

Introduction

Our paper contributes to the literature on the impact of financial markets on resource misallocation. Tu (2017) [9] finds that social capital has a limited impact on China’s agricultural productivity using province-level panel data from 1978 to 2014 We contribute to this strand of literature in three significant ways: (1) instead of focusing on a subset of agricultural industries, we examine all agricultural industries to have a broader picture of agricultural factor misallocation; (2) instead of province-level panel data, our nationally representative household-level microdata allows us to control for granular differences across rural households over time; (3) we provide the very first microlevel evidence on the differential impacts of the breadth and depth of rural financial market development on agricultural factor misallocation. In the 2010 baseline survey, the CFPS conducted interviews with around 15,000 households and 30,000 individuals. e CFPS respondents are tracked through follow-up surveys. (Our sample ends in 2014 since the 2016 survey data does not include information on households’ land usage) the survey covers households from 25 provinces in China

Results

Discussion

Conclusion