cite: Wang2020
author: Wang, C., Deng, M., & Deng, J.
year: 2020
title: Factor reallocation and structural transformation implications of grain subsidies in China
publisher: Journal of Asian Economics
uri: https://doi.org/10.1016/j.asieco.2020.101248
pubtype: article
discipline: economics

country: China
period: 2007-2016
maxlength: 108
targeting: implicit
group: rural workers
data: TERMCN-Land database; Chinese Input-Output Table 2007

design: simulation
method: historical and TERMCN-Land structural simulation model
sample:
unit: sector
representativeness:
causal: 0 # 0 correlation / 1 causal

theory:
limitations: aggregate national employment exogenous to model; strong correlation to Chinese economic characteristics makes generalisability difficult
observation:
  - intervention: subsidy (firm-level)
    institutional: 0
    structural: 1
    agency: 0
    inequality: income; spatial
    type: 1 # 0 vertical / 1 horizontal
    indicator: 1 # 0 absolute / 1 relative
    measures: income ratio
    findings: the rural-urban income inequality is exacerbated if grain subsidies are removed; over the long term this increase attenuates but income ratio remains decreased for rural labour
    channels: displacement of rural unskilled labour; unskilled labour supply increase, labour difficult to absorb into manufacturing/service sectors; low income/price elasticity for agr. products lower rural income
    direction: 1 # -1 neg / 0 none / 1 pos
    significance: 2 # 0 nsg / 1 msg / 2 sg

notes:
annotation: |
  A simulation on the effects of ending subsidies for the agricultural grain sectors in China, analysing among others the effects on rural-urban income inequality.
  The study finds that while it would over time boost the industrial economic structural transformations, rural-urban income inequality is indeed exacerbated if grain subsidies are to be removed, especially in the short term.
  Over the longer term the real wage decreases of rural workers would attenuate, indicating that the rural income ratio would increase but fail to completely close the gap.
  The authors suggest this is on the one hand due to the displacement of rural unskilled labour, leading to an increase of unskilled labour supply which is difficult to absorb into the manufacturing or service sectors,
  while on the other hand the low income and price elasticity of agricultural products drives down overall rural incomes.
  Thus, the authors uncover a trade-off between national economic output over the long term which they identify as adversely affected by the subsidies,
  and the rural-urban income ratios which the subsidies help decrease, though with decreasing contributions over time.
  Some limitations of the study include the necessity to assume static national employment and, more importantly,
  a limited generalisability due to simulating the specific Chinese structural economic characteristics in the resulting model.