Moving out of agriculture: How trade liberalization affects agricultural productivity in China

Abstract

The literature on structural economic transformation often overlooks how structural changes affect agricultural development. This paper addresses that gap by examining the impact of the U.S. granting China permanent normal trade relations (PNTR) and China's subsequent WTO accession in 2002 on agricultural productivity. Using panel data from the National Fixed-Point Survey, a difference-in-differences analysis reveals that one standard deviation reduction in tariff uncertainty has led to a 7 % to 9 % decline in agricultural productivity, as measured by yields and total factor productivity. One mechanism is that the trade shock results in a notable decline in the number and share of agricultural laborers with higher human capital: those with higher physical strength, of prime working age, and more educated. The shift in human capital between economic sectors helps reconcile the discrepancy between this paper and literature on factor misallocation and productivity, which posits that reallocating excess labor from agriculture should improve productivity. JEL Classification: F14, F16, O13, O17.