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Adjustment

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Adjustment

    Adjustment

    Jun.2004

    Volume3,No.6(SerialNo.12)

    China-USABusinessReview,ISSN1537?1514

    USA-ChinaBusinessReview(Journa1),In~.,USA

    AdjustmentofMacro-economicDevelopmentPattern

    onthe]DevelopmentofChina'sAgriculture

    DashengLi

    Abstract:ThepaperarguesatthedevelopmentofChina'sagricultureisconstrainedbytheindustrialbias

    macro

    economicdevelopmentpam:rn.Theroleofagriculturaldevelopmentinadualeconomyisalsostudied.It

    isarguedthatafundamentaladjnstmenttothemacro

    economicdevelopmentpatternisneededtobalance

    industrialandagriculturaldevelopment.

    Keywords:macro-economicdevelopmentpatternagriculturedualeconomy 1.Introduction

    Agric.1tureisanimportantsectorinChina'seconomy,anditsdevelopmentisthefocusoftheworld.

    Generallyspeaking,Chinahassuccessfullyharnessedthelimitedresourcebasetoproduceenoughagricultural

    productstoprovidethebasicneedsoffoodandclothingtoitscitizensinthepastdecades.However,since1985.

    agricultureasawholegrewatalowaveragerate.Inrecentyears,academiciansandpolicymakershave

    developedarisingawarenessofthesustainabilityinChina'sAgriculture.

    Inthepastfivedecades,industrydevelopedmuchmorerapidlythanagriculture.Greatprogresshasbeen

    madeinChina'sindustrialdevelopment.whileagricultureisstillatlowebb.China'sindustrialbiasdevelopment

    strategyandtherelatedpolicieshaveprofoundinfluencesonagriculture.Theobjectivesofthispaperareto

    provideinsightsintoeffectsoftheindustrialbiasmacro-economicdevelopmentpatternontheagricultural

    development.andtodrawoutsomepolicyimplicationsforthedevelopmentofChina'sagriculture.

    2.TheUnbalancedDevelopment

    InordertostrengthenChina'snationalpower,theChinesegovernmentadopted.anindustry.oriented

    developmentstra~gyin1952.Foralongtime,priorityineconomicdevelopmenthasbeengiventoindustry,

    especiallytoheavyindustry,anderaphasiswasplacedonthelargescale,state

    ownedindustry,whichwashighly

    capitalintensiveandconcentratedmostlyonurbanareas,agricultureandlightindus

    beingsuffocated.After

    economicreformsstartedin1979.1:hedevelopmentstrategywasadjustedtosomeextent;howeveLtheindustrial

    biasdevelopmentstrategyhasnotc:hangeddramatically.

    Duringtheprocessofindustrialization,industrializationaccumulationcausedagriculturalcapitalloss.

    Consideringaneconomywithtwosectors:Agriculture(A)andIndustry(I),atwo

    sectormodelcanbeestablished

    (Sheng1993).whichhasthefollowingequations:OA=QAA+Q^landOIQlA+Qll,where0AandOlrepresent

    'DashengLi(1963-).male,Ph.D.andprofessorOfSchoolofAgriculturalEconomics.SouthChinaAgriculturalUniversity;Address:

    SchoolofEconomicsandTrade,SouthChinaAgriculturalUniversity,Guangzhou,P,R.China,Postcode:510642;Tel:02085287433.

    13006871162;E.mail:dshli@scau.edu.el1.

    AdjustmentofMacro-economicDevelopmentPatternontheDevelopmentofChina'sAgriculture

    theoutputsofagricultureandindustryrespectively;QAAandQA,indicatetheproductsproducedinagricultural

    sectorandconsumedinagriculturalandinindustrialsectorsrespectively,andQIAandQIiindicatetheproducts

    producedinindustrialsectorandconsumedinagriculturalandinindustrialsectorsrespectively.Letthepricesof

    agriculturalandindustrialproductsarePAandPI.PAQAIisthesumofagriculturalresourcesusedbyindustrial

    sectorandPIQIAisthesumofindustrialresourcesusedbyagriculturalsector.WhenPAQAIPIQIA>0,thatis,

    PAQAI>PIQIA.thereareresourceflowsoutofagriculture,andwhenPAQAI

    PIQIA<0,thatis,PAQAI<PIQIA,there

    areresourceflowsintoagriculture.Intermsofintersectoralcommodityexchange,PAQAIrepresentstheexportsof

    agriculturalsectortoindustrialsector,andPIQIArepresentstheimportsofagriculturalsectorfromindustrialsector.

    Thebalanceofintersectoralexchangeindicatestheimport(orexport)excessofthesector,Whenonesector

    exportsitsproductstotheothersector,itreceivesincomethatentitlesthesectortocommandacertainamountof

    theothersector'sproducts,whichhaveequivalentvalue.Inaneconomy,asectormayhaveacertainamountof

    importexcessonlywhenithasobtainedthisamountofextrafundsfromtheothersectorthroughfinancial

    transfers.Inotherwords.netfinancialtransferbetweenthesectorsfinancesthebalanceofintersectoraltrade.

    Whenpricestructureisdistorted,however,resourcesflowbetweensectorsnotonlythroughcommodity

    exchangeandfinancialtransfersbutalsothroughpricemechanism.Theexchangebalanceandfinancialaccount

    calculatedatcurrentpricescanonlymeasuretheintersectoralresourceflowingthroughnonpricemechanismsbut

    cannotmeasuretheintersectoralresourceflowingthroughpricemechanisms.Supposeagriculturalproductsare

    under

    priced,andtherealpricesarePArandPIr.Inthiscircumstance,thepriceoftheagriculturalproducePAris

    lowerthanPA.Therefore,PAQAIPlrQIA<PAQAI

    PIQIA.Thedifferenceisthepartofintersectoralresourceflows,

    whichistransferredthroughpricemechanisms.

    Wecangetthefollowingequation:[PAQAI-PIQIA=[PArQAI-PIrQIA+

    (PAQAI-PArQAI)+(PlQIAPIQIA)].

    Thetotalintersectoralresourceflowsis[PAQAIPIQIAwhichcombinestwoparts.

    PArQAI-PIrQIAisthepartof

    intersectoralresourceflowsthroughnonpricechannelsand[(PAQAI-PArQAI)+(PIrQIA

    PIQIA)isthepartof

    intersectoralresourceflowsthroughpricemechanisms.Theestimationofintersectoralresourceflowsthrough

    non?pricechannelscanbeapproachedfromtheperspectiveoftheagriculturaltax(AT)andagriculturalsaving

    surplus(AST).Thustheresourceflowsfromagriculturalsectortoindustrialsectorthroughnon-pricechannels

    canbeestimatedby(AT+AST).InChina,theindustrializationaccumulationfromlowprices(ALP)of

    agriculturalproductsisthemainkindofintersectoralresourceflowsthroughpricemechanisms,whichcanbe

    estimatedbythefollowingequation:ALP=GVP*(Pe/Pr.1,.'

    TherelateddatacanbeobtainedfromthepublisheddatabySSB(ChinaStatisticalYearbook,variousissues).

    Thetotalindustrializationaccumulationwas1899billionyuanfrom1952to1995,equaltotheoriginalvalueof

    fixedassetsofstate-ownedindustryenterprisesinl994andmorethan3timesbiggerthangovernment

    expenditureonagricultureduringthesameperiod(Lieta1.,1998).

    Industrializationalsoswallowedagriculturalnaturalresources.Froml957to1995,thetotalcultivatedland

    andcultivatedlandpercapitarespectivelydeclinedfrom1

    1.83miIlionhato94.97lmiIlionhaandfrom0.173ha

    to0.078ha.Duringtheperiodfroml978tol995.therewasanannullOSSof0.26miIlionha.With

    industrialization,industrialwateruseisincreasingrapidly,removingwaterfromtheagriculturalsector,thus

    Theestimationofindustrializationcapitalaccumulationfromlowpricesofagriculturalproductsisastubbornproblemtheoretically

    andpractically.Inordertoknowhowtoestablishtheequation,pleasereadDashengLieta1.(1998),Industrializationandthe

    SustainabilityofChina'sAgriculture,EconomicsofPlanning,31:213230.

    AdjustmentofMacro-ee~momicDevelopmentPatternontheDevelopmentofChina'sAgriculture

    intensifyingthecompetitionbetweenagricultureandindustryforwater.Withanindustrialgrowthrateofmore

    than11percentayear,industrialwaterneedscouldeasilydoublewithinsevenyears(Brown,1995).InChina,the

    annualgrowthrateofgrossoutputofindustryis14.70percentfrom1978to1995.Sowecanestimatethat

    industrialwateruseinChinahasatleasttripledfrom1978to1995.

    ThedevelopmentofChina'sagricultureiscons~ainedbytheindustrialbiasmacro

    economicdevelopment

    pa~ern.Thereformperiodbetweetl1978and1984broughtrapiddevelopmenttoagriculture.Theagricultural

    GDPgrewat6.91percentannuallyinthisperiod.Since1985.agricultureasawholegrewataloweraveragerate

    andshowedadecreasedtrend.TheagriculturalGDPgrewonlyat3.69percentanfmallybetween1985and2002.

    TheratioofUrbanpercapitadispo.,:ableincometoruralpercapitanetincomefrom1.7:1to3.24:lin2003.Urban

    percapitadisposableincomegrewby9%inrealterms.andruralpercapitanetincomeroseby4.3%inrealterms.

    Ofthetotaloutputvalueindustryclimbedfrom43.1percentin1952to83.7percentin1999,whilegrossoutput

    valueofagriculturefellfrom56.9percentto16.3percent.However,changesintheemploymentstructurewere

    muchlessdramatic:about50percentofthetotallaborforcewasstillengagedinagriculturein2002.

    3.TheRoleofAgriculture

    TheLewismodelisthebasisforthesectoralgrowthliterature.Thestartingpointofthismodelistheideaof

    adualeconomy.Thedualismthink:;thatcapitalaccumulationintheindustrialsectoristheengineofgrowth.and

    economicdevelopmentneedsthejcinttransferoflaborandagriculturalsurplusfromthe"traditional"agricultural

    sectortothe"modern"industrialsector.Onceindustrializationhastakenplace.agricultureisexploitedinthe

    desiretobuildrapidlyamodernindustrialsector.Anurban-basedintelligentsia(includingdevelopment

    economist),largelymacro-orienteddevelopmenteconomists,andurban-basedpoliticalsystemsallcombineto

    provideanintellectualbasisandpoliticalmotivationfordirectingresourcestotheindustrialsector(Mellor,1986).

    Generallyspeaking,theLewismodelrulesoutthreemajorissues.First,itonlynoticestheagricultural

    forwardlinkageeffectsbutneglectsthebackwardlinkageeffectstoothersectorsoftheeconomy.Actually

    agriculturenotonlyprovidesmatelials,capitalandlaborto.butalsoahugemarketfor,theindustrialandother

    non-agriculturalsectors.Second,itdeniesthattheremaybeimportantgrowth

    promotingfactorsinagricultural

    sector.Third.itrulesoutfeedbackmechanismsbetweenagricultureandindustry.Manydevelopingeconomies,

    whichimplementpoliciesbasedontheviewofthemodel,havebeentryingtoindustrializetheireconomiesatso

    highaspeedthatagriculturalgrowthissuffocated.Fromaneoclassicalstandpoint.theunbalanceddevelopment

    betweenacapital-?intensiveindustrialsectorandalabor

    -intensiveagricultureimpliesamisallocationofresources

    sincemorecouldhavebeenproducedthroughadditionalinvestmentinagricultureanduseofless

    capital-intensiveindustrialtechnology.

    Recentdevelopmentsinthesectoralgrowthliteraturedisputethisviewofthemode1.Yao(2000),Blunchand

    Verner(1999),emphasizetheroleofagricultureingeneratingeconomicgrowthandhighlightpossibledynamics

    betweenagricultureandindustry.Theystronglysupportthatsustainableeconomicdevelop

menthastodependon

    abalanceddevelopmentoftheagriculturalandindustrialsectors.Theimportanceofagricultureliesnotonlyinits

    abilitytoprovidefoodforthepopulation,amplerawmaterialsfordomesticindustries.taxrevenuesandexportfor

    foreignexchange,butalsoinitsabilitytosustainadecentincomegrowthratefortheruralpopulationwhichin

    turnprovidesahugemarketfordomesticproductsandservices.

    TounderstandtheroleofagdcultureinChina'seconomicgrowth,Yao(2000)establishesaneconometric

    AdiustmentofMacro-economicDevelopmentPatternontheDevelopmentofChina'sAgriculture

    modeltounveiltheextentofthelinkagesbetweenagricultureandothereconomicsectors.BasedonaVARmodel

    andtime-seriesdataforsectoralGDPindicesover1952l996,threeco

    integratedvectorsareidentifiedamong

    fiveeconomicsectorsinChina,includingagriculture,industry,transportation,constructionandservices.Two

    importantconclusionsaredrawnfromtheVARresult.First,alleconomicsectorstendtomovetogetherfco

    integrate)overtime.Second,agricultureisthemajordrivingforceforthegrowthofallothersectors,but

    agriculturedoesnotbenefitfromthegrowthofothersectors.

    WonandLin(1992)alsodemonstratethatagriculturehadstrongandpositiveeffectsonindustrialgrowthbut

    theconverseisnottrue.WonandLinevaluatedtheinterrelationshipbetweenChina'sagriculturalsectorand

    industrialsector,usingtimeseriesdataof1952

    1988.Thecausalitytestindicatesthatthegrowthofagricultural

    sectorhascontributedtothegrowthofindustrialsector,butthatindustrialsectorhasnotcontributedtothegrowth

    ofagriculturalsector.

    China'seconomiccyclesfurtherdemonstratetheroleofagriculture.Themostboomyearswerepositively

    relatedtomorefavorableagriculturalpolicies,whereasallthepooryearswerenegativelyrelatedtoinadequate

    agriculturalperformance.Althoughagricultureisnottheonlydecisivefactorofthewholeeconomicgrowth,ithas

    beenthemostimportantdrivingforceoftheeconomy,evenifitsshareintotalGDPhasbeendecliningovertime.

    4?ToAdjusttheMacro-economicDevelopmentPatternfortheDevelopmentofChina'sAgriculture

    China'sagricultureisinacrucia1periodofitsdevelopment.Weneedtoconsolidateandstrengthenthe

    positionofagricultureasthefoundationofthenationaleconomy.Itisimportanttostressthatifagricultureisto

    benefitthegrowthofothersectorsandthentosustaintheeconomicgrowth,thegovernmentneedstoadjustthe

    macro.controlsystemanddevelopmentstrategiesinordertobalanceindustrialandagriculturaldevelopmentand

    urbanandruraldevelopment.Agricultureshouldbeanintegratedpartofthesystemwithinwhichagricultureand

    industrypromoteeachother.Afavorablesocio

    economicenvironmentinwhichrationalrelationshipbetween

    agricultureandindustryisachievedisindispensabletodevelopingagriculture. Moresupporttoagricultureshouldbeprovided.China'sindustrializationnowisinitsmiddlestageaccording

    tothetheoryofdevelopmenteconomics,anditshouldnotaccumulateitscapitalfromtheagriculturalsectorany

    more,onthecontrary,industrialsectorneedstosupportagricultureasameansof'refunding'thepastexploitation.

    Governmentsatalllevelsmustinvestmoreinagriculture,ruralareasandfarmers.Treasurybondfundsshouldbe

    investedmainlyinprojectsforruralareasinordertoimprovethelivingandproductionconditionsoffarmers.It

    shouldbeseektobestowonagriculturesectorthebenefitswhicharesimilartothoseobtainedinnon.agricultural

    sectors,suchaseasyavailabilityofcreditandotherinputs,andinfrastructurefacilitiesfordevelopmentof

    agri

    businessindustriesanddevelopmentofeffectivedeliverysystemsandfreeingmovementofagricultural

    products.Ruralfinancialservicesshouldbeimproved.Toassistruralresidentsexpandproduction,ruralcredit

    cooperativesshouldextendmoremicro

    creditloanstoindividualfamiliesandgroupsinruralareas.Itis

    necessarytoreformruraltaxesandadministrativechargesanditistimetorepea1. Itshouldbeeasilyunderstoodthatitisimperativetoputconstraintsontheuseofvaluablefarmlandresource

    inatimeofexplosivechangeandstronglycompetinginterests.Thearablelandpercapitaislessthanhalfofthe

    world'saverage.Controloftheresourceslossshouldberegardedasabasicnationalstrategy.Itisneededtostop

    localgovernmentsfromillegallyreclaiminglandsfromfarmersfornonagriculturalusing.Thestrictestpossible

    systemforprotectingfarmlandshouldbeimplementedandcontrolovertheuseoffarmlandshouldbe

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