Rural off-farm labor markets and land rental markets in China face many institutional obstacles and remain largely underdeveloped. The current land tenure system is the most crucial one. This study uses data collected from 479 randomly selected farm households in Henan province to explore the impact of land tenure arrangements on off-farm labor markets and land rental markets development and the combined effects of land institutions and factor market development on agricultural production. Based on the notion of tenure security and transferability as the main ways through which land tenure affects behavior, this study uses four variables to measure land tenure arrangements. Two variables have been chosen to represent tenure security: the number of reallocations that have taken place in a village since the HRS was established and household expectations of land reallocation in the next few years. The share of households with certificates in a village and land transfer rights possessed by a household are used to indicate household land transferability.The determinants of off-farm employment participation, off-farm employment labor allocation as well as their work duration were analyzed using probit, poisson and tobit models. Factors affecting land rental market participation and its transaction amount were analyzed using Cragg s double-hurdle model with the assumption that the decision to participate in land rental markets may precede the decision on its transaction amount. Simple Ordinary Least Square (OLS) regressions were used to investigate the impact of land tenure, off-farm employment and land rental participation on land and labor productivity. Finally, a one-step Stochastic Frontier Production model was employed for examining the determinants of technical efficiency.The empirical analyses indicate that land tenure security and land transferability incentive household s off-farm labor market and land rental market participation, while migration could facilitate land rental market development by increasing more land rental supply, and finally, the development of land rental markets improves the efficiency of land allocation, agricultural productivity, as well as technical efficiency. Based on the empirical results, a number of policy options can be formulated as follows. Firstly, further reform of land tenure and Hukou systems. Secondly, build local institutions that facilitate land transfer and off-farm employment. The third set of policy options is to promote rural industry. Finally, invests in infrastructure constructions and social service. These policy measurements are likely to facilitate land rental market development, stimulate off-farm employment, thereby increasing agricultural productivity and rural household incomes and reducing rural-urban income inequality.
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