Green technological progress, agricultural modernization, and wage inequality: Lessons from China

• Published date: 01 August 2023
• Author: Dianshuang Wang,Hongyun Huang,Xin Zhao,Fang Fang
• Date: 01 August 2023
• DOI: http://doi.org/10.1111/rode.13006

REGULAR ARTICLE

Green technological progress, agricultural

modernization, and wage inequality: Lessons

from China

Dianshuang Wang

1,2

|Hongyun Huang

3

|Xin Zhao

4

|

Fang Fang

5

1

School of Economics, Anhui University

of Finance and Economics, Bengbu,

China

2

Urban and Rural Development Research

Center, Anhui University of Finance and

Economics, Bengbu, China

3

Center for Economic Research,

Shandong University, Jinan, China

4

School of Statistics and Applied

Mathematics, Anhui University of

Finance and Economics, Bengbu, China

5

School of Economics and Management,

Xinjiang University, Urumqi, China

Correspondence

Hongyun Huang, Center for Economic

Research, Shandong University, Jinan

250100, China.

Email: hongyunhuang0628@163.com

Funding information

Innovation Development Research

Project of Anhui Province, Grant/Award

Number: 2021CX053; Ministry of

Education Humanities and Social Science

Project of China, Grant/Award Number:

22YJC790121; National Natural Science

Foundation of China, Grant/Award

Number: 71873001

Abstract

Green technological progress (GTP) is crucial for envi-

ronmental protection and economic growth in China.

Over the past decades, China made huge GTP which

exerts a far-reaching consequence on economic and

social development. However, a paucity of research

investigates the distributional effect of GTP. Mean-

while, we incorporate agricultural producer service sec-

tor into a three-sector general equilibrium model to

reflect the modernization of small-scale agriculture.

The agricultural producer service sector that acts as an

intermediate sector can facilitate the utilization of

intermediate inputs indirectly. To desalinate this pro-

cess, a two-layer vertical production structure is

established: parts of manufacturing goods are utilized

by the service sector, outputs of which are intermediate

inputs that could substitute labor in agriculture. Theo-

retical analysis shows that GTP increases both wage of

skilled labor and unskilled labor. Nevertheless, GTP

generates a greater impact on the wage of skilled labor

than unskilled labor, leading to widening income dis-

parity. Then, we examine the impact of GTP on wage

inequality using a balanced panel data covering 30 pro-

vincial units in China during 2000–2019. In line with

our theoretical conjecture, we find strong supportive

evidences that GTP significantly widens the wage

inequality.

Received: 15 June 2022Revised: 29 March 2023Accepted: 1 May 2023

DOI: 10.1111/rode.13006

Rev Dev Econ. 2023;27:1673–1698. wileyonlinelibrary.com/journal/rode © 2023 John Wiley & Sons Ltd.1673

KEYWORDS

agricultural producer service, green technological progress,

modernization of small-scale agriculture, rural labor migration,

wage inequality

1|INTRODUCTION

The severe environmental pollution and rural–urban migration are two typical features of

China economy. The massive inflow of rural labor, providing the urban manufacturing sector

with rural labor forces, contributes to rapid economic growth in last two decades. However,

remarkable economic achievements and expansion of industrialization also brought severe

environmental problem in the form of air and water pollution (Huang, Mbanyele, Fan,

et al., 2022). Pollution generates a greater negative influence on the economy as the worse the

pollution. In view of the huge cost, Chinese government enacted environmental regulation to

combat pollution (Huang, Mo, et al., 2021). Environmental protection raises the cost of produc-

tion and may result in contraction of manufacturing output and unemployment. As a develop-

ing country with a large population, this trade-off between environmental regulation and

employment is particularly important for China to manage its sustainable economic develop-

ment. Green technological progress (in following we call it as GTP), which means the greater

utilization efficiency of resources and reduction of pollution in producing unit goods, plays a

significant role in coordinating the contradiction between environmental protection and output

growth. Research shows that China indeed made huge GTP since the reform and opening-up

(Song et al., 2021). Under this perspective, GTP exerts a far-reaching consequence on economic

and social development.

Meanwhile, with the parallel development of industrialization and urbanization over the

past few years, the production structure of agriculture in China has changed dramatically that

promotes the modernization process of agriculture. One prominent characteristic of agriculture

is a high degree of land fragmentation, with farm sizes averaging only about 0.5ha

(Adamopoulos et al., 2022). Small-scale operation leads the process of agricultural moderniza-

tion vast different from that of scale agriculture in developed countries. Specifically, small-scale

agriculture faces difficulties to employ modern intermediate inputs directly, which are crucial

to promote high agricultural productivity and agricultural modernization (Restuccia

et al., 2008; Yang & Zhu, 2013). On the one hand, farmers cannot afford to purchase relatively

expensive modern inputs, such as agricultural machinery. On the other hand, their small-scale

operations also make them unable to exploit economies of scale. In practice, small-scale agricul-

ture purchases specialized producer service from service-provider firms and outsources some

steps of agricultural production, through which utilizes modern equipment indirectly (Huan

et al., 2022; Qin & Zhang, 2016; Wang et al., 2016; Zhang et al., 2017).

In the modernization process of small-scale agriculture, accommodating an intermediate

sector, agricultural producer service sector,

1

is motivated by three concurrent events that

occurred in China during the past two decades. First, rural agriculture has experienced massive

labor outflow and agricultural output keeps growing simultaneously after “Lewis turning

point”.

2

Second, rural migrants' income grew faster than the growth rate of the price index of

agricultural means of production. From 2009 to 2019, the average growth rate of migrants'

income was 10.47%, while the price index was only 2.42%. Third, agricultural production

1674 WANG ET AL.