Reforms, agricultural risks and agro-industrial diversification in rural China: Evidence from Chinese Provinces

Since the implementation of the economic reforms in 1978, there is a remarkable diversification trend in rural China characterized by an impressive development of rural enterprises. The main objective of this paper is to understand the forces driving this agro-industrial diversification which has important impact on the employment, incomes and welfare of rural residents. A particular attention has been paid to two categories of factors, agricultural income risks and institutional factors such as the ownership evolution of rural enterprises. Using a panel data of 28 Chinese provinces from 1986 to 2001, we show that the diversification decision is jointly affected by relative return between agriculture and rural industry, climatic risks, price volatility of agriculture products, ownership evolution of rural enterprises marked by the dramatic rise of private enterprises, and government’s food security concern. A number of provincial structural variables, such as population density and education achievement of rural labour force, are also found to have significant effects on the agro- industry diversification in rural China