Research on the Macroeconomic Linkages of Chinese Agriculture

Author: Liu Qinghe
Publisher:
Publish Date: 2006-05-01
Features: The continuously evolving Chinese agriculture is becoming an increasingly open industry sector with broader and tighter connections to the national economy and even the global economy. Therefore, at least logically, traditional closed, static, micro, and localized research methods based on the "local equilibrium island hypothesis" or "waterproof compartment hypothesis" are becoming increasingly unsuitable for studying the operation of China's agricultural economy. It is necessary to replace them with open, dynamic, macro, and holistic research methods that examine agriculture within the macro background of the entire national economy and even the global economy. Based on the above considerations, this book comprehensively applies relevant theories and methods from macroeconomics, industrial economics, agricultural economics, and econometrics to establish a "China Agricultural-Macroeconomic Linkage Model" that connects agriculture and the macroeconomy. On this basis, through several dynamic simulation experiments, it analyzes the impact of changes in factors such as interest rates, exchange rates, agricultural tax policies, and agricultural product prices on agriculture and the macroeconomy from an open, dynamic, macro, and holistic perspective, and explores the characteristics and quantitative relationships of the China Agricultural-Macroeconomic linkage.
The primary innovation and contribution of this book is the establishment of the "China Agricultural-Macroeconomic Linkage Model" as an analytical platform. For a long time, agriculture has been regarded as the "foundation of the national economy." Except for certain periods, the one-way impact of agriculture on the national economy has received widespread attention, while the actual two-way, dynamic macroeconomic connections between agriculture and the national economy have been long neglected. Numerous works that view agriculture as a "local equilibrium island" naturally cannot examine agricultural economic issues from a macro, open perspective. Some other works have acknowledged the severe flaws of research based on the "local equilibrium island hypothesis" and attempted to introduce some macroeconomic variables into their agricultural sector equilibrium models. However, these macroeconomic variables are often exogenously determined, so the entire model still cannot describe the actual two-way, dynamic macroeconomic connections between agriculture and the national economy. Existing foreign models on China's agricultural development also face similar issues. The model established in this book examines agriculture within the entire macroeconomic system, truly reflecting the economic reality that China's evolving agriculture is becoming an increasingly open industry sector with broader and tighter connections to the national economy and even the global economy. This allows us to break free from the limitations of traditional closed, static, micro, and localized research paradigms and methods based on the "local equilibrium island hypothesis" or "waterproof compartment hypothesis," and adopt an open, dynamic, macro, and holistic research paradigm and methodology to study the operation of the agricultural economy. This is the main methodological difference between this book and all previous relevant research and can also be considered its primary innovation and contribution.
The second major innovation and contribution of this book is the use of the "China Agricultural-Macroeconomic Linkage Model" as an analytical platform to employ dynamic policy simulation experiments to analyze the impact of changes in macroeconomic factors (such as exchange rates, interest rates, agricultural taxes, and agricultural product prices) and agricultural economic factors on agriculture and the macroeconomy, as well as the dynamic behavior of these impacts. This not only demonstrates the strong interaction between agriculture and the national economy but also provides several important empirical bases for relevant decision-making. For example, the dynamic simulation experiments in this book prove that changes in exchange rates have a significant and lasting impact on most variables of agriculture and the macroeconomy (especially output, employment, fiscal revenue, household income, consumption, and investment), so the appreciation of the RMB must be done cautiously. Additionally, the dynamic simulation experiments in this book also prove that exempting or reducing agricultural taxes, while beneficial for promoting economic growth and expanding social employment, primarily yield short-term economic effects with a relatively rapid decay rate. To maintain the economic effects of exempting or reducing agricultural taxes, it is necessary to continue doing so until they are completely abolished and no longer collected. Furthermore, the dynamic simulation experiments in this book also prove that the low-price policy for agricultural products "harms farmers without benefiting the country," especially as this policy has a very significant negative impact on rural household income and social employment. Therefore, as long as inflation is not triggered, agricultural product prices should be maintained at a reasonable and higher level. All these conclusions are not simple qualitative descriptions or baseless estimates but are derived from the results of dynamic simulation experiments, making them reliable empirical bases for relevant decision-making.
The third innovation and contribution of this book are reflected in data development. Due to limitations in data availability, a significant portion of the data used in this book (such as fixed asset stock in the agricultural sector, intermediate inputs in the agricultural sector, intermediate demand for agricultural products, final demand, import-export price indices, and the RMB-to-US dollar real exchange rate) were calculated by the author based on relevant materials. For example, the author estimated agricultural fixed asset investment for each year since the 1990s, combined with Chow's (1993) estimation of the capital stock in China's agricultural sector from 1952 to 1985, to obtain annual time series data for the fixed asset stock in China's agricultural sector since 1990. Based on existing input-output tables, the author calculated annual time series data for intermediate inputs in the agricultural sector, intermediate demand for agricultural products, and final demand during the sample period. Using the World Bank's online database (WDI) and the annual statistics on international trade from the World Trade Organization, the author obtained annual time series data for import-export price indices and the RMB-to-US dollar real exchange rate. These data were estimated to some extent, filling gaps in the relevant field and strengthening the data foundation for related research.