Economic well-being and farming sustainability when trade shocks occur: Insights from agricultural households

Abstract

This paper investigates how industrial trade shocks affect agricultural sustainability and economic well-being of rural households. Drawing upon Chinese National Fixed Point Survey data of agricultural households, we find that a positive industrial trade shock significantly contributes to environmental degradation in rural areas, primarily due to the increased use of pesticides and fertilizers. However, it also generates diverse income sources for rural households, creating job opportunities beyond agriculture and enhancing their overall economic well-being. Our analysis offers a comprehensive investigation of the adaptation behaviors of rural households concerning labor allocation, crop planting, and land utilization. The underlying mechanisms indicate that a positive trade shock prompts a reallocation of household labor from agricultural activities to non-agricultural employment, as well as a transition in land utilization from cereal crops to cash crops. These transformations contribute to increased income for agricultural households; however, they also necessitate greater land area for cash crop production and an intensified reliance on pesticides and fertilizers. Overall, this study clarifies the channels through which industrial trade shocks can impact the economic well-being, resource reallocation, and sustainability of rural communities.