CReAM Brown Bag Seminar - Zihan Hu (Singapore Management University)

Title: Land Property Rights Protection and the Backfire of a Well-intended Agricultural Machinery Subsidy Policy    

Abstract: Our study examines the impacts of an agricultural machinery subsidy policy under different contexts—those with and without land property rights protection—using detailed rural household panel data from China. We initially observe that, in the absence of land property rights protection, the machinery subsidy policy predominantly benefits households in the top quartile of land possession. This advantage is particularly pronounced for politically connected households such as government officials, leading to increased machine usage, farm size, and income. Conversely, households in the bottom quartile experience detrimental effects in all three aspects. The introduction of the Rural Land Contracting Law (RLCL), which limits officials' ability to reassign land and enables land markets, marks a significant shift in the subsidy policy's impact. With RLCL, the adverse effects of the subsidy policy on poorer households are substantially mitigated, and the disparities in impact between officials and non-officials are eradicated. We propose two explanations for this finding: 1) The subsidy policy encourages large landowners to expropriate land from smaller landowners, a behavior prevented by RLCL; 2) Poor households suffer from the general equilibrium impacts of lower food prices due to increased production by wealthier households, but the RLCL-enabled land market compensates poor households through higher land prices. Further analysis shows negligible impacts of the subsidy policy on food prices, which rejects the second explanation. Through this analysis, the study highlights the intertwined nature of policy impacts and the critical role of institutional infrastructure in the success of development policies.

Location: 321, Drayton House