Does financial development enhance agricultural production in the long‐run? Evidence from China

• Published date: 01 May 2022
• Author: Abbas Ali Chandio,Yuansheng Jiang,Qaiser Abbas,Asad Amin,Muhammad Mohsin
• Date: 01 May 2022
• DOI: http://doi.org/10.1002/pa.2342

ACADEMIC PAPER

Does financial development enhance agricultural production in

the long-run? Evidence from China

Abbas Ali Chandio

1

| Yuansheng Jiang

1

| Qaiser Abbas

2

| Asad Amin

3

|

Muhammad Mohsin

4

1

College of Economics, Sichuan Agricultural

University, Chengdu, China

2

Department of Economics, Ghazi University,

Dera Ghazi Khan, Pakistan

3

College of Economics and Management,

Beibu Gulf University, Qin Zhou, Guangxi,

China

4

School of Finance and Economics, Jiangsu

University, Zhenjiang, China

Correspondence

Abbas Ali Chandio, College of Economics,

Sichuan Agricultural University, Chengdu

611130, China.

Email: alichandio@sicau.edu.cn

This study aims to examine the impact of financial development on agricultural pro-

duction in the case of China. The study used country level time-series data for the

period 1989 to 2016. We applied the autoregressive distributed lag (ARDL) approach

to investigate the long-term cointegration relationship between underlying variables

and the fully modified ordinary least squares (FMOLS) for robustness check. Results

of this study confirm the existence of a long-term relationship among the variables.

The ARDL estimation results reveal that financial development has a significantly

positive impact on agricultural production in both long-run and short-run. The fully

modified OLS confirm the robustness of the findings. This study suggests that the

Chinese government should pay more attention on long-run policies to enhance agri-

cultural growth through improving banking sectors, efficient rural credit markets, and

increasing township banking infrastructures in the country.

1|INTRODUCTION

Agriculture sector is playing a significant role in China's economy from

the prospective of food production, source of employment, productiv-

ity, and ultimately a source of economic growth. More than 300 million

peoples are engaged with agriculture sector and this sector is contrib-

uting around 12% of total gross domestic product (GDP) (Gulati &

Fan, 2007). As China has 20% of world population but still able to cul-

tivate only12.6% area of its land and total 10% arable land of the

world. According to the World Bank (2017) report, China's agriculture,

forestry and fisheries are contributing 7.9% in national GDP. More

than half of China's (900 millions) peoples are still living in remote

areas, and about 800 million inhabitants are engaged in farming,

forestry, and fishing, respectively (Qin, Wachenheim, Wang, &

Zheng, 2019; Rehman, Jingdong, Du, & Zhang, 2015).

China is the world's most populated country is not stingy their

energies to pursuing food security also preserving social security of

the nation. In China, output of grain crops was increased 113 to

571 MT from 1949 to 2011, although per capita grain production was

also increased from 209 to 424 kg/year (Li et al., 2014). That was a

great achievement to expand the rice, wheat and maize production

with introducing the new verities of seeds and intensification of

multiple cropping with irrigation, fertilizer and chemicals related to

agriculture. The trend of output of grain crops (kg/ha) in China from

1975 to 2016 is shown in Figure 1. How China can raise agriculture

production to encounter the increasing demand of food grains in com-

ing years still much debatable. It is predicted that population in China

will upsurge from 1,347 to 1,462 million in 2030 (Zhu & Chen,2002).

Currently, due to increasing population and income growth, China

will require more stable agriculture to meet the increasing demand of

agricultural products for consumers, industries, and livestock. Agricul-

ture sector is responsible for supplying raw material to agro-based

industries; for example, China industrial use of corn has been

increased fourfold from 10.5 million metric tons (MMT) in 2001 to

40 MMT in 2006 (Gale, Hansen, & Jewison, 2015; Xu, Zhang, Diao, &

Chen, 2011). Dismal of the agriculture sector can lower productivity,

increase the poverty and unemployment, and also can be a source of

food shortage as China has one of the biggest share of world popula-

tion. China's urban population share was remained less than 20% up

to 1980s but it has triggered nearly 50% during 2010 and it is

expected that urban population will cross 75% share of total popula-

tion before 2050 (UN, 2015). Due to this huge demographic structural

alteration and urbanization, it is needed to develop a long-term plan-

ning for agriculture and food staff in China. The economic class of

Received: 20 April 2020 Revised: 1 June 2020 Accepted: 27 July 2020

DOI: 10.1002/pa.2342

J Public Affairs. 2022;22:e2342. wileyonlinelibrary.com/journal/pa © 2020 John Wiley & Sons Ltd 1of14

https://doi.org/10.1002/pa.2342