Institutional Regime, Off-Farm Employment, and the Interaction Effect: What are the Determinants of Households’ Forestland Transfer in China?

Abstract

Abstract:The development of the land rental market has been widely attributed to the associated institutional regime and the functioning of the off-farm labor market. However, little is known of the interaction effect of these two factors. To fill this gap, we employ a nationwide representative household dataset to investigate the effects of China's collective forest tenure reform (CFTR) and off-farm employment on forestland transfer in China. Special interest is focused on their potential interaction effect. The Smith-Blundell instrumental variable tobit model is adopted to account for the endogeneity of off-farm employment. The estimation results show that both the tenure reform and off-farm employment significantly influence forestland transactions. However, compared to the positive effect of the reform on both renting in and renting out forestland, the effect of off-farm employment is mixed, that is, its effect is negative when forestland is rented in but positive on rent-out decisions. An important finding is that the CFTR imposes a negative enhancement effect on forestland rent-in through its interaction term with off-farm employment. In contrast, the enhancement effect on rent-out is not statistically significant, which may be due to the neutralization by the endowment effect of the CFTR.

Property Rights, Village Political System, and Forestry Investment: Evidence from China’s Collective Forest Tenure Reform

“…In addition, there has been some debate as to whether ecological factors are primary factors affecting small-scale forest owners' investment incentives. Some studies find that forest attributes are positively correlated with household inputs into forestry [18,42], while several other studies have questioned the impact in the developing countries [2,43]. Since the geographic factors and size and quality of household forests vary to a large extent in China's southern collective forest regions and could affect the benefits and costs of household forestry production [44], we also use ecological factors to explain household forestry investment decisions.…”

“…In China, the local agricultural and forest collectives own 62% of all the forests [1]. Since the founding of the People's Republic of China in 1949, Chinese tenure institutions of forestland have experienced a series of fundamental changes [2]. The radical and frequent institutional reversals in property rights induced by these changes have severely dampened households' forestry investment incentives [2,3].…”

“…Since the founding of the People's Republic of China in 1949, Chinese tenure institutions of forestland have experienced a series of fundamental changes [2]. The radical and frequent institutional reversals in property rights induced by these changes have severely dampened households' forestry investment incentives [2,3]. Thus, beginning in the late 1990s and continuing into the early twenty-first century, to motivate households to conduct forestry investments, the Chinese central government initiated a new round of collective forest tenure reforms (collectively referred to as Tenure Reform), including the 1998 Land Management Law, the 2002 Rural Land Contract Law, the 2003 Resolution on the Development of Forestry, and the 2007 Property Law [4].…”

“…These forests accommodate 71% of domestic timber production. In the supplementary reform, the disposition right, beneficiary right, and corresponding property right policies of forests became more intact and secure [2]. Since 90% of China's forests are located in mountainous areas and 86% of rural households in poverty live in the same areas, China's government places high expectations on the investment incentive and poverty alleviation effects of the Tenure Reform [1,3].…”

Effect of Forestland Property Rights and Village Off-Farm Environment on Off-Farm Employment in Southern China

“…Therefore, when forestland use rights are unstable, farmers who engage in the non-agriculture sector may face the risk of losing forestland use rights [21]. While forestland use rights are stable, farmers will have a stable source of social security and farmers can assuredly engage in off-farm production [38]. However, the long-term production process of forests and the large gap between revenues from the agricultural and the non-agricultural sectors, which mean that the stable forestland use rights play a greater role in the social security effect, currently contribute to labor off-farm employment.…”