The Impact of Nonfarm Activities on Agricultural Productivity in Rural China

Although evidence abounds that the development of rural non-farm activities have increased rural household income and contributed to rural development, the underlying structure and mechanism of the linkage between agricultural productivity and non-farm activities is poorly understood. Using a unique panel dataset of Chinese villages, this article examines the mechanism by which non-farm activities influence agricultural productivity. I find that Chinese villages’ non-farm revenue has a significant positive effect on agricultural land productivity. Although non-farm activities do withdraw labor out of agriculture and therefore dampen land productivity, that negative effect is negligible in comparison with the land productivity improvement brought by nonfarm revenue-financed infrastructure capital investment.