Transforming the Traditional Agricultural Economy:
Delivering Rural Services and Reducing Rural Poverty in China
Wei Zou*
Transforming the Traditional
Agricultural Economy:
August 2004
Language: English
Delivering Rural Services and Reducing
Rural Poverty in China
Prepared for the program on:
Fiscal Management For Better Governance:
Learning from Each Other
A Joint Program of the Ministry of Finance, China, the Canadian Agency for International Development
and the World Bank Institute
Web: www.worldbank.org/wbi
----------------------------------------------------------------------------------------------------------------------------------------
Wei Zou
* The speaker is a professor at Wuhan University, China. This presentation was made at the International
Seminar on Local Public Finance and Governance, held in Dali, Yunnan Province China, August 9-12, 2004. The
seminar is one of series of events organized under the program, ‘Fiscal Management for Better Governance’. The
program is directed by Dr. Anwar Shah ([email protected]), Lead Economist and Program Leader on Public
Sector Governance, World Bank Institute, 1818 H Street, NW, Washington, DC 20433, USA. For further
information, please contact Chunli Shen ([email protected]).
2004-11-24
Yunnan, China
1
Wuhan University, P.R.China
2004-11-24
Yunnan, China
The Theme of the Paper
The Theme of the Paper(Cont.)
The key to economic development is to
transform traditional agriculture, and move
it into the path of modern economic growth
„ The “ThreeThree-Rural”
Rural” (“sansan-nong”
nong”) problems
in China: Rural areas
„
Rural economy
„
Rural residents
„
The key to transforming traditional
economy lies in increasing the economic
value of people as well as increasing human
capital investment
„ The core of “ThreeThree-Rural”
Rural” problems is to
make rural residents (peasants) better off
„
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2
3
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Yunnan, China
4
1
Modern Economic Growth and
Traditional Agricultural Economy
The Theme of the Paper(Cont.)
In essence, the source for the widespread
poverty in rural China is not the poverty of
income or consumption, but the poverty of
capability
„ Many subsidies have been made to rural
areas without significant outcome
„ Our suggestion is to invest more on rural
infrastructure and rural people
„
2004-11-24
Yunnan, China
„
„
„
5
Traditional agricultural economy has lasted for
hundreds or thousands of years
Traditional agricultural economy is closer to “optimum”
optimum”
or “equilibrium”
equilibrium” than modern economy is
Traditional agricultural economy is stagnant in its
operation and life style
The equilibrium of traditional economy is sure to be
broken
Yunnan, China
The transform towards modern economic growth
depends on the change in economic structure
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Yunnan, China
6
Literature(1)
„
2004-11-24
high growth rate of per capita output
high growth rate of input factors
fast transition in economic structure
fast change in social structure and ideology
technological progress and diffusion
coco-existence of very few developed economies and a
large amount of developing economies
„
“The economic growth starting from traditional
agricultural economy is very costly.”
costly.”
(Schultz,1993)
„
„
„
„
„
The six characteristics for modern economic
growth (Kuznets
,1973)：
：
(Kuznets,1973)
„
Modern Economic Growth and Traditional
Agricultural Economy(Cont.)
„
„
7
„
„
„
„
„
“taketake-off”
off” and the determinants of physical
capital
Rostow,1960;
Rostow,1960; Lewis,1955
“BigBig-Push”
Push” theory
RosensteinRosenstein-Rodan,1943;
Rodan,1943; Nurkse,1953;
Nurkse,1953;
Nelsen,1954; Scitovsky,1954;
Scitovsky,1954; Fleming,1955
Murphy,Sheleifer
Murphy,Sheleifer & Vishny,1989;
Vishny,1989;
Krugman,1992
Krugman,1992
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Yunnan, China
8
2
Literature(2)
Literature(3)
„
The population trap and “the vicious cycle
of poverty”
poverty”
„
Leibenstein,1954
：critical minimum effort
Leibenstein,1954：
Galor & Weil,2000：
Post-Weil,2000：Malthusian Stage——
Stage——Post
Malthusian Stage——
Modern Economic Growth
Stage——Modern
Stage
Hansen & Prescott,1998：
Prescott,1998：Malthusian(decreasing
returns)——
Solow technology(increasing returns)
returns)——Solow
„
„
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9
The Low Level Equilibrium of
Traditional Economy (1)
„
−
k
„
„
„
sA
„
„
„
The Low Level Equilibrium of
Traditional Economy(2)
Basic assumptions: land is normalized to 1；
1；stable
population growth at rate n；
n；the production function is
fixed proportion; constant returns to scale
Y=min(AK,BL)
„
„
„
Capital
accumulation is
not enough to
n+δ
n+δ
offset the
negative capital accumulation population
growth, the per
capita capital
sf(k)/k
sf(k)/k
converges to zero.
0
2004-11-24
The multiple equilibria of the path of economic
growth
„ Ethier,1982
：externality in international trade
Ethier,1982：
„ Romer,1986
：externality and increasing returns
Romer,1986：
„ Krugman,1981,1987,1991
：history and
Krugman,1981,1987,1991：
expectations
„ Matsuyama,1991
：selfMatsuyama,1991：
self-fulfilling expectations
and multiple equilibrium
„ Mulligan & Sala：the
Sala-I-Martin,1993; Xie,1994
Xie,1994：
dynamic transition in economic growth and
2004-11-24
Yunnan, China
10
divergence
„
Capital
accumulation
grows faster
than population,
there will be
spare capital.
sA
n+δ
n+δ
„
„
sf(k)/k
sf(k)/k
„
spare capital
„
„
0
k
k
Yunnan, China
11
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12
3
The Low Level Equilibrium of
Traditional Economy (3)
„
„
sA
n+δ
n+δ
„
sf(k)/k
sf(k)/k
„
economic stagnant
„
„
0
The Possible Paths of Transforming
Traditional Economy
„
„
sA
„
n+δ
n+δ
Ⅰ
„
k
„
0
„
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Yunnan, China
Ⅱ(EAST)
Ⅲ(WEST)
Ⅳ(MIDDLE)
„
The rate of
capital
accumulation is
the same as that
of population,
the economy
will be in a
stagnant.
13
2004-11-24
k
→ kl* ←
*
km
→
Yunnan, China
„
China, at all levels of government, currently
spends about 2.5% of its GDP on investment in
schooling. At the same time, roughly 30% of its
GDP is devoted to physical investment.
In the U.S., these figure are 5.4% and 17%
respectively.
In South Korea, they are 3.7% and 30%.
30%.
„
Data source: UNESCO, 1999, 2000.
„
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Yunnan, China
←
14
Compared
with other
countries,
the share of
public
spending on
education
in China is
rather low.
And the
situation in
rural China
is even
worse……
Human capital investment in China
„
k*
h
15
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16
4
The Characteristics of the Rural
China under Transform(1)
„
„
„
The Characteristics of the Rural
China under Transform(1)
Per capita output is still rather low. Although the
importance of traditional agricultural economy in
national economy is decreasing, there is still a
long way to go before it is ready for a “taketake-off”
off”
„
TABLE Output, population and per capita income in
Rural China (source: Calculated from China Agriculture Yearbook 2002)
Per capita output at the time of taketake-off: $215$215-227 for
Britain and Switzerland; $474$474-760 for former colonies of
European countries (in 1960 US$),.
While the per capita output for rural residents in China is
approximate $68.29 in 1990 and $190.7 in 2001.
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Yunnan, China
1990
1995
2000
2001
1st sector
output(Bil
.R
output(Bil.R
MB)
501.70
1199.30
1462.81
1460.99
Rural
Population(1
0,000)
89590.3
91674.6
92819.7
93382.9
159.5
192.2
190.7
Per capita
68.29
income(USD)
17
The Growth in GDP and the First
Industry (agriculture)：1952-2001
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Yunnan, China
18
The Share of Retail in Rural Area in National
Retail of Consumer Goods：1978-2001
120000
70
100000
80000
60
Rural
consumption
is decreasing
compared
with urban
level.
60000
40000
20000
GDP
SEC1
0
1952.00
1970.00
1962.00
1981.00
1978.00
1985.00
1983.00
1989.00
1987.00
1993.00
1991.00
1997.00
1995.00
50
40
RURCON
The share of
agriculture in
GDP is
decreasing, and
the growth rate
of agriculture is
stagnant
overtime.
2001.00
1999.00
YEAR1
30
1952.00
1970.00
1962.00
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Yunnan, China
19
2004-11-24
YEAR1
1981.00
1978.00
1985.00
1983.00
1989.00
1987.00
Yunnan, China
1993.00
1991.00
1997.00
1995.00
2001.00
1999.00
20
5
The Characteristics of the Rural
China under Transform(2)
„
„
„
The Growth of Rural and Urban per
capita Income: 1978-2001
8000
There is great gap in income and consumption
levels between the rural and urban residents.
Urban residents enjoy much higher income and
more consumer goods
Urban residents also enjoy more social welfare
(education, medical care, public utilities etc.)
The gap
between
urban and
rural
residents
is getting
larger and
larger.
6000
4000
2000
URBINC
0
1978.00
RURINC
1983.00
1981.00
1987.00
1985.00
1991.00
1989.00
1995.00
1993.00
1999.00
1997.00
2001.00
.
.
.
YEAR
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21
Consumption of Rural and Urban
Residents：1978-2001(with rural residents
set as 1)
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„
3.4
„
3.2
3.0
2.8
„
URBRURCO
2.4
2.2
1978.00
1983.00
1981.00
1987.00
1985.00
1991.00
1989.00
1995.00
1993.00
1999.00
1997.00
2001.00
.
.
.
22
The Characteristics of the Rural
China under Transform(3)
3.6
2.6
Yunnan, China
Poverty is much more serious in rural China.
According to the official criteria of “absolute poverty”
poverty” in
China, which is around 630 RMB/manRMB/man-year( comparable
with only $0.22/man$0.22/man-day), the incidence of poverty in rural
China is 3.2% in 2001, with a population of 29.27 million
living in the serious poverty.
All 581 Counties for National PovertyPoverty-relief are located in
MidMid-west rural China. 62.8% of the poverty counties and
53.4% of the poverty population are located in the 12 “BigBigDevelopment”
Development” West Provinces.
YEAR
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23
2004-11-24
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24
6
Rural poverty in 2002
Rural poverty in 2003
„
According to the absolute poverty criteria (RMB627/ manmanyear), the incidence of poverty in rural China is 3.0% ,
with a population of 28.20 million living in the serious
poverty.
„
„
Most of the rural poverty people are living in the west 12
“BigBig-Development”
Development” areas (61.8% in total) and food
producing areas (55.1% in total).
The incidence of poverty is higher that 10% in 4 provinces
(NMG,GUIZHOU,XIZANG,QINGHAI); 55-10% in
another 6 provinces (including YUNNAN)
„
„
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25
The Characteristics of the Rural
China under Transform(4)
„
According to the absolute poverty criteria (RMB637/ manmanyear), the incidence of poverty in rural China is 3.1% ,
with a population of 29.00 million living in the serious
poverty.
More people returned to poverty situation due to a huge
amount of natural disaster.
56.71 million rural people are in lowlow-income group (per
capita annual income no more than 882), 6% of total rural
population.
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26
The share of rural spending in fiscal
spending (1952-2001)
The public spending to the rural is just
minimal compared with those in the urban
and compared with the huge rural
population dispersed in the wide areas
„ The infrastructure investment in rural China
is not only deficient, but also still
decreasing
RURAL SPENDING/TOTAL SPENDING(%)
„
14
12
10
Mean NYE
8
6
4
1952.00
1970.00
1962.00
1985.00
1978.00
1989.00
1987.00
1993.00
1991.00
1997.00
1995.00
1999.00
NFEN
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27
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28
7
The share of rural infrastructure
investment in total infrastructure
investment (1952-2001)
The serious deficiency in
infrastructure: GUIZHOU case
„
RURAL INFRASTRUCTURE/TOTEL INFRASTRUCTU
20
„
„
Mean NJI
10
In Guizhou,
Guizhou, there are still 19 counties and over
8000 villages that are not accessible by any
transportation
1045 villages never use electricity,
4.25 million people can not get clean drinking
water
The first five
“five-year”plans
(1952-1980)
0
0
2
4
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
PERIOD
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29
The serious deficiency in
infrastructure: GANSU case
„
„
„
„
„
„
Yunnan, China
Yunnan, China
30
The Characteristics of the Rural
China under Transform(5)
In Gansu,
Gansu, the infrastructure of transportation,
communication, medical care, basic education, living
environment is rather inadequate and fragile.
20% of the villages are not accessible by any vehicle
47% of the villages have never used telephone
62% of the villages have no preschool or kindergarten,
63% of the villages are more than 2 miles away from the
nearest primary school
6% of the rural residents have no clean drinking water
42% of the villages have no hospital or clinic
2004-11-24
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„
„
„
31
The income gap among different regions are
expanding. Different regions may pursue different
path for economic transform.
The past two decades evidence a significant
increase in the variance of per capita income
across East , Mid and West China:
￥26.7 in 1980, 57.2 in 1985, 131.21 in 1990, 445.29 in
1995, 611.23 in 2000, 654.85 in 2001.
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32
8
Rural per capita income: regional
variance (RMB)
Per capita Income of Rural Residents across
China (RMB)
700
3500
3000
500
2500
nation
Mean FCHA
That means
an obvious
expansion
in the
income gap
among
rural
residents.
600
400
2000
300
1500
200
1000
east
middle
west
west12
500
100
0
0
1980
1985
1990
1995
2000
2001
1980
1985
1990
1995
2000
2001
YEARR NFEN
33
The Characteristics of the Rural
China under Transform(6)
Rural
expenditure on medi-care, education
图12residents’
农村居民对医疗、交通与教育的支出
and transportation
250
200
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Yunnan, China
35
medicare
trans
educa
150
100
50
2004-11-24
99
97
19
95
Yunnan, China
19
19
93
91
19
19
87
89
19
85
19
19
83
0
81
The Engle’
Engle’s coefficient in rural China is
decreasing
Rural residents are spending more on medical care,
transportation and post service, education during
the past two decades.
The investment on people will play more
important role in the economic transform in rural
China
ye
„
34
The Expenditure on Medical Care,
Transportation and education(￥/person)
19
„
Yunnan, China
19
„
2004-11-24
元/人
Yunnan, China
ar
2004-11-24
36
9
Rural Economic Transform:
Empirical Analysis
„
The regression equation:1978equation:1978-2001, China
„
A：the share of the first industry in GDP(the decrease of
the share is a signal for economic transform)
Conclusions from empirical analysis
„
A = C +α K +α K + α H + α H + α H +
1 1 2 2 3 0 4 1 5 3
α H +α Expen +α Pindex +α Engles
6 5 7
8
9
+α Med +α Trans +α Educa +α Dummy
10
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11
12
„
13
Yunnan, China
37
Conclusions from empirical
analysis(cont.)
„
„
Yunnan, China
2004-11-24
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38
Transforming agricultural economy:
cross-section analysis
The effect of rural residents’
residents’ education levels on transform
seems to be insignificant, but we can find out that the
extremely lowlow-level education(illiteracy or primary school)
is negative for transform, while the higherhigher-level
education(college or above) is positive for transform.
According to different consumption expenditure, rural
residents’
residents’ medical spending is insignificantly negative for
transform, while transportation and education
spending(esp.education) is positive for transform.
2004-11-24
The physical capital investment is favorable for
transform when it is considered separately. Yet
while taking into account the factors as rural
residents’
residents’ investment on themselves, the
importance of physical capital accumulation
becomes quite insignificant, even negative.
The rural consumption expenditure is negatively
related with economic transform, but the rise of
prices of production factors is positively related
with transform
39
„
Regression equation：
equation：31 provinces of
China in 2001
A =C + β K + β N + β H + β H + β H
j
j 1 j 2 j 3 0 j 4 1j 5 2 j
+ β H + β HOS + β Expen + β Sosec + β Med
j 8
j 9
j 10
j
6 5j 7
+ β Trans + β Edu + β Dummy
j 12
j 13
j
11
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40
10
Conclusions from cross-section
analysis
„
„
„
Conclusions from cross-section
analysis(cont.)
While considering the effect of rural spending, rural social
insurance, rural medimedi-care, the effect of physical capital on
transform is not only insignificant, but also quite unstable.
The huge rural population is everywhere a big hindrance
for transform
The rural consumption spending is positive for transform.
In 2001, in almost all the provinces, education has become
the third largest spending of rural residents(coming after
food and housing), the medical and transportation spending
is also increasing sharply.
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41
„
„
„
The increase in rural hospitals is positive, while the effect
of increase in rural remedy funds is insignificant.
The increase in rural residents with primary and middle
school education is positive, while the increase in rural
residents with college or higher education has insignificant
effect.
Comparing the extremely low level of education(illiteracy)
with higher education(college or above), the former’
former’s
effect is ignorable, while the latter has significantly strong
effect.
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Final remarks(1)
Final remarks(2)
„ It is possible that different regions
„
pursue different paths for transform.
„
„
„
East China: internal and external sources for
human capital accumulation-PathⅡ
Ⅱ
accumulation--Path
Middle China: relatively abundant human
capital accumulated historically-PathⅢ
Ⅲ
historically--Path
West China: poor human capital stock,
significant outflow-PathⅣ
Ⅳ
outflow--Path
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43
„
„
42
In 12 “BigBig-Development”
Development” provinces, the destitution of
income or consumption is just an evidence for poverty, the
fundamental source of poverty is the lack of motive and
capability to invest in people.
The “capability poverty”
poverty” means poverty in education,
medimedi-care, health, social insurance, living environment and
economic opportunity.
It is the “capability poverty”
poverty” that we must fight against for
transforming traditional agricultural economy.
2004-11-24
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44
11
Policies against rural poverty
„
„
Increase the share of fiscal spending in rural areas
Reduce the taxation burden of rural residents
‹
„
„
Invest in improving education in rural areas, especially in
primary and secondary schools; eliminate illiterate adults
„
Invest more in environment protection, e.g. reserve natural
resources, protect land and forest etc.
Invest more in rural infrastructure, especially roads,
railways, telecommunications, drinking water, hospital and
clinics, and media services
‹
The taxation burden on the poor rural residents is the heaviest
among all peasants.
More public investment rather than subsidy
‹
„
Policies against rural poverty
„
Most subsidy has been misused or wasted.
More concentrated investment rather than
dispersed investment
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45
Learn from the “performanceperformance-oriented grant” system
2004-11-24
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46
12