Agriculture Reference
In-Depth Information
and rural ncome: provnces havng a hgher urbansaton rate have a
hgher rural ncome. Ths relatonshp may mply that urbansaton helps to
lberate redundant rural labour from arable land and therefore ncreases
agrcultural productvty. Consderng that one-half of the Chnese labour
force is still agricultural labour, urbanisation could have a significant impact
on agrcultural productvty.
A causality test on the impact of urbanisation and policy
considerations
However, this urbanisation effect does not have to be the only explanation
for the relationship shown in Figure 4.3, because both urbanisation and
higher rural income can be an outcome of economic growth. In the following,
we ntroduce a growth model to test the causalty between urbansaton
and regonal economc growth. Ths model has ts orgns n neoclasscal
growth models and endogenous growth models (see, for example, Solow
1956; Lucas 1988) but includes variables representing urbanisation:
Y
it
=A+a
1
K
it
+ a
2
H
it
+a
3
D
it
+a
4
L+a
5
U
it-1
+a
6
DU
i(t-1)
+ε
it
(1)
where
Y
it
, K
it
, H
it
D
it
and
L
it
are growth rates of GDP, capital stock, human
resources (indicated by workers' average year of schooling), cultivated land
area and total employment, respectively, of the
i
th provnce n year
t
.
U
it-1
s the urbansaton rate wth a one-year lag (the urbansaton rate used s
the rato of urban employment to provncal total employment).
DU
i(t-1
)
s
the dfference of
U
i
between years
t-1
and
t-2
. ε is the error term.
Lagged varables of
U
and
DU
are used for the causalty test between
urbanisation and economic growth. This specification identifies the effect
of urbansaton on growth f
U
or
DU
is significant. The reason for including
both
U
and
DU
n the model s to dstngush the possble growth effect
(long-run effect) and level effect (short-run effect) of urbansaton. A
significant estimate of
U
ndcates a contnung effect of urbansaton on
growth (meaning urbanisation brings about higher productivity growth),
whereas a significant estimate of
DU
ndcates an mpact from changes n
the urbanisation rate on growth, which is a short-run effect.
