Market versus Administrative Reallocation of Agricultural Land in a Period of Rapid Industrialization*

While the Chinese household responsibility system reform of the early 1980s sharpened individual work incentives, it left unresolved questions about the reallocation of land between households over time—questions that have become increasingly important from both efficiency and equity perspectives as the non-farm economy has grown rapidly in recent years. Household and village data are used here to show that indeed the initially egalitarian land distribution is becoming more disperse over time and that different areas have seen both administrative and market-based responses to this new economic challenge. Simulated maximum likelihood methods are used to estimate hybrid panel models of the determinants of both market and administrative land reallocations, as well as the insecurity-induced investment costs of the former. Results show that administrative reallocations respond to increasing inequality, but that these non-market reallocations come at a significant cost in terms of foregone investment. _________ * The authors thank the World Bank and the Ford Foundation for their support of this research. We would also like to thank Klaus Deininger and Pedro Olinto for their extensive comments and help, and Weiping Chen for her research assistance. All views expressed in this report are the authors’ responsibility and should not be attributed to the funding agencies. MARKET VERSUS ADMINISTRATIVE REALLOCATION OF AGRICULTURAL LAND IN A PERIOD OF RAPID INDUSTRIALIZATION Section