Agriculture Reference
In-Depth Information
of state-owned enterprises (SOEs) in the inland regions, which crowd out
private enterprises. The private sector, however, also needs the government
to provde nfrastructure to overcome the geographcal dsadvantages of
the nland regons.
The modellng has also shown that Chna's monetary polcy regme of
the fixed yuan and capital controls has increased the rural-urban income
gap by rasng real wages and reducng employment growth n the non-
agrcultural sectors. The results show that movng away from ths monetary
polcy regme could lead to a much more rapd relocaton of labour out
of agriculture and thereby promote a reduction in the rural-urban income
gap.
A monetary polcy regme change could also reduce the adverse mpacts
of the WTO trade reforms on the agricultural sector. Modelling with capital
controls in place and the fixed exchange rate results in almost the entire
agrcultural sector beng adversely affected by the tarff reductons. Even
partal relaxaton of the monetary polcy regme could reduce ths adverse
impact. For example, when capital controls are in place but the exchange
rate is floated, the 'other crops', livestock and fisheries sectors expand.
The government is, however, right to undertake any change in its
monetary policy regime gradually and cautiously, as shown by the East Asian
financial crisis. Adoption of a floating exchange rate would be premature,
considering the underdeveloped state of China's financial sector, its only
partally reformed bankng sector and ts stll-vulnerable SOEs. The prorty
at ths stage should be to accelerate the reforms n each of these areas.
Notes
1 A detailed description of the original model is provided by Hertel (1997).
2 The key dfference between the long-run analyss n ths paper (Chapter 10) and that n
Tyers and Rees (Chapter 9) s that n the model used for the smulatons reported n ths
paper (Chapter 10) there s an assumed postve relatonshp between the trade reforms
and productvty growth.
3 See http://en.wikipedia.org/wiki/List_of_free_trade_agreements
