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Long-Term Impact of China’s Returning Farmland to Forest Program on Rural Economic Development

Yuchen Gao (), Zehao Liu (), Ruipeng Li () and Zhidan Shi ()
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Yuchen Gao: School of Economics and Management, Tsinghua University, Beijing 100084, China
Zehao Liu: School of Finance, Renmin University of China, Beijing 100872, China
Ruipeng Li: School of Finance & Investment, Guangdong University of Finance, Guangzhou 510521, China
Zhidan Shi: School of Public Policy and Management, Tsinghua University, Beijing 100084, China

Sustainability, 2020, vol. 12, issue 4, 1-17

Abstract: The Returning Farmland to Forest Program (RFFP) is widely known as one of China’s largest and most successful payment schemes for ecosystem service projects for the achievement of both environmental and economic sustainability. By sponsoring afforestation activities and compensating farmers for converting cropland to forest, the project was designed to achieve multiple goals. Ecologically, the program aims to expand forest cover and to reduce flood and soil erosion. Economically, it aims to alleviate poverty and improve rural livelihoods. Although the official metrics indicate successful program outcomes in the short term, researchers have reported mixed and controversial results for long-term outcomes. We combined the difference-in-difference (DID) with instrumental variables (IVs) regression to examine the long-term effects of China’s RFFP on local economic development. We found that (1) the RFFP has had a remarkably positive impact on local economic growth in the primary sector, but considerably limits the growth of enterprises above a designated size by 16.8%; (2) the RFFP is unable to promote the development of the secondary industry because it cannot effectively promote the transfer of rural laborers to the secondary industry sector; and (3) in addition to increasing the general budgetary expenditure of local finance by 7.50%, this program has significantly reduced local fiscal revenue by 35.50%. We suggest that eco-compensation should consider the performance of the RFFP in its evaluation criteria.

Keywords: returning farmland to forest program; payment for ecosystem service; regional economic development; instrumental variable; difference-in-differences methods (search for similar items in EconPapers)
JEL-codes: Q Q0 Q2 Q3 Q5 Q56 O13 (search for similar items in EconPapers)
Date: 2020
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