Agricultural Constraint to the Insatiable Investment Demand

As reviewed in section 2.4.1 there have been continuous efforts to link China’s investment cycles and agricultural fluctuation. On the one hand, Eckstein (1968) combined agricultural fluctuation with policy cycles to explain the fluctuation of economic growth during the 1950s. In the same vein, Tang & Huang (1982) used estimates of total factor productivity from 1952-79 to suggest that the peasants had historically responded in a predictable and speedy manner to Beijing’s policy gyrations which impinge upon them economically. On the other hand, Naughton (1986) retested Eckstein’s theory based on the data from 1953-83 and suggested that although there is some evidence of this link between policy and production in the 1950s, attempts to attribute a causal role to agricultural production or procurement trends in the generation of investment fluctuations after 1958 were unsuccessful (Naughton 1986: 157). Naughton’s argument is confirmed by Imai (1994a). It is clear that empirical evidence on this issue in the literature is ambiguous