The Effects of China’s Sloping Land Conversion Program on Agricultural Households

Zhen Liu and Arne Henningsen

No 2014/10, IFRO Working Paper from University of Copenhagen, Department of Food and Resource Economics

Abstract: In the late 1990s, China aimed to mitigate environmental degradation from agricultural production activities by introducing the world’s largest ’Payments for Environmental Services’ (PES) program ― the Sloping Land Conversion Program (SLCP). In order to analyze its effects on agricultural households, we develop a microeconomic Agricultural Household Model (AHM), which can model the production, consumption, and non-farm labor supply decisions of agricultural households in rural China in a theoretically consistent fashion. Based on this theoretical model, we derive an empirical specification that we use to econometrically estimate the effects of the SLCP and other exogenous factors. Using a large longitudinal farm household survey data set, we estimate the empirical model with the Hausman-Taylor estimation method. The empirical results are generally consistent with the results of our theoretical comparative static analysis, e.g. that the SLCP significantly decreases agricultural production. While the SLCP increases non-farm labor supply and total consumption in the Yellow River basin, these effects could not be observed in the Yangtze River basin. The recent reduction of the SLCP compensation payment rates has had some notable, but generally small effects.

Keywords: Sloping Land Conversion Program; Agricultural household model; Household behavior; Hausman-Taylor Estimator; China (search for similar items in EconPapers)
JEL-codes: H31 Q12 R38 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2014-10
New Economics Papers: this item is included in nep-agr, nep-cna, nep-env and nep-tra
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Journal Article: The effects of China's Sloping Land Conversion Program on agricultural households (2016)
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