| Abstract | In the context of fast economic growth led by urbanization and industrialization, grain production in China has experienced profound changes. The rural labor force decreased 0.11 billion between 1990 and 2014. And at the same time, agricultural mechanization level increased remarkably, which decreased the side effect of rural labor force outflow on grain production. But the mode of agricultural mechanization in China changed. Between 1981 and 2001, it was stimulated by small machineries, and since 2002, large and medium machineries have become the major force for agricultural mechanization.
Why China, as a country endowed with too many people and too little land, could successfully achieve agricultural mechanization? Why the mode agricultural mechanization in China has transformed in the new century? One important factor was effect of the non-farm employment. So at micro-level, how did the non-farm employment affect rural households’ decision to invest on agricultural machinery and use machinery service respectively?
Empirically, this paper used more than 39 thousand rural household data and 100 thousand family members’ data from Rural Fixed Observation Points to study the effect of non-farm employment on agricultural machinery investment and service demand. Using random effect tobit model, this paper arrived conclusions as below. (1) Non-farm employment had a significantly negative effect on agricultural machinery investment, and significantly positive effect on agricultural machinery service demand for rural households. In total, non-farm employment contributed to agricultural mechanization in China. (2) After using PSM to control endogeneity, this paper concluded that high level non-farm employment contributes more than 52% of agricultural machinery service input, but decrease 14% of agricultural machinery investment by household. (3) Other characters of rural household affected direct investment and service demand as well. Total sown area had positive influence on both sides, and labor input had negative influence on both sides, which proved the complementary and substitution effect of agricultural machinery on land and labor respectively. After the transfer of major labor force, the old and female were inclined to use agricultural machinery service, which was the identification that machinery service market decreased the side effect of urbanization on food crisis in China. Besides, the degree of land fragmentation, grain price and the number of labor force had influences on the way household used machinery as well.
In China, agricultural machinery service market promoted agricultural mechanization and division of labor. This market endogenously developed from both China’s agriculture attributes and non-farm employment. This form of supply made it possible that agricultural machinery became club goods in China, so this paper applied club theory and pointed out the essence of cross-regional agricultural mechanization service was that agricultural machinery has evolved to the club goods. China is a large country with vast land, and the production time span for different regions can be sufficient enough for machinery to service cross-regionally.
Based on the theoretical and empirical analysis, this paper put forward two policy implications: (1) Because non-farm employment households intended to use agricultural machinery service rather than directly invest on machinery, the government should promote supply ability of large and medium agricultural machinery and strengthen machinery service market. As it was a waste for every rural household to invest on agricultural machinery, the government should cut subsidies on small machinery. (2) After the open up of land market, the land will transfer to family farm and agricultural firms. Based on club theory, the agricultural machinery will revert to private goods. So the government should adjust its agricultural mechanization strategy under the background of land reform.
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