The Study On The Impact Of Agribusiness Development On Income Distribution

The judgment that "agricultural development has positive impact on disparity" is questionned by more phenomenon which shows that the impact of agricultural development on income disparity is diminishing. Meanwhile, countries with strong agricultural pre-producing and after-producing sectors has relative low income disparity, such as the United States and Japan; countries with weak agricultural pre-producing and after-producing sectors has relative high income disparity, such as India and Latin Americans. Therefore, is there any relationship between agribusiness development and income disparity? Three questions are needed to answer about this issue:Does the data show that agribusiness development narrows income disparity? What is the mechanism of the influence of agribusiness development on income disparity? What is the impact of agribusiness developmental policy on income disparity in China?This paper firstly extends the concept of agriculture from agricultural producing sector to agribusiness includes agricultural input sector, agricultural producing sector, agricultural processing sector and agricultural distributing sector, because agriculture is a system, and cannot be evaluated only in producing sector. Meanwhile, this paper also broads the economic scale from agricultural producing sector to agribusiness in terms of share of value added in GDP. Compared with the share of value added of agricultural producing sector in GDP with10.5%, the counterpart of agribusiness in GDP is27.1%in2005shows that agribusiness is an important industry in the economy. Then, this paper studies the impact of agribusiness development on income disparity in perspectives of statistics, theory and policy simulation separately.The study shows that agribusiness development has positive impacts on narrowing income disparity from the statistic characteristics both at international level and provincial level in China. The study chooses the index for measuring the developmental degree for agribusiness under the guidance of agribusiness theory and method of value added accounting, and estimates the value added of agribusiness and its components for the main economies in the world and provinces in China. Meanwhile, the study selects GINI coefficient and income ratio between urban and rural areas as proxies for income disparity according to economic theory and economic reality, and collects these data from the main databases about international income disparity and China’s statistic yearbooks in related years. The study finds out that the development of agribusiness could narrow income disparity both at international level and provincial level based on the panel data econometric model with different settings.The study shows that statistic characteristics, such as the developmental degree of agribusiness is increasing with economic growth while agribusiness development could narrow income disparity, could be explained by Structural Growth theory with Non-Homothetic Utility which considers the consumer’s Engel effect, and the Social Accounting Matrix theory which considers industrial linkage and households’ heterogeneity. We find out the following implications from the above two theories: Firstly, the developmental degree of agribusiness will increase with economic growth. Secondly, agribusiness development may narrow income disparity in case of homogeneous labor with transaction cost for labor flow across industries. Thirdly, in a closed economy with different types of labor with different wages, and labor demands among different industries are different, the development of agribusiness (excluding the agricultural producing sector) could narrow income disparity. Fourthly, agribusiness development may increase income disparity in certain groups if households’have a high degree of heterogeneity.The study builds a Computable General Equilibrium Micro-Simulation model incorporated with Non-Homothetic Utility, Industrial Linkage and Households’ Heterogeneity for policy analysis, and finds that the cut of production tax on agribusiness could narrow the whole country’s income disparity, while the income disparity in certain groups may increase. This conclusion is robust under different macro closures and parameters’uncertainty. Specific conclusions are:Firstly, the cut of production tax on agricultural processing and manufacturing sector is the most effective to reduce the whole country’s income disparity. Secondly, the impacts of agribusiness development policy on income disparity are different in urban with decreasing income disparity and rural areas with increasing income disparity. Thirdly, the impacts of agribusiness development policy on income disparity are different among rich regions with decreasing income disparity and poor regions with increasing income disparity. Fourthly, above conclusions are robust under different macro closures and parameters’uncertainty.The study is a valuable inheritance and development of existing literature. Firstly, the existing concepts and measurement methods of agribusiness are theoretical foundations for this study. Based on the existing studies on showing the importance of agribusiness by economic accounting, this study measures the value added of agribusiness both at international level across OECD countries and main developing countries, and at provincial level in China, sheds light on the relationship between agribusiness development and economic growth, and shows that agribusiness development has positive effect on narrowing income disparity through panel data econometric model. Secondly, existing researches focus on the impact of agricultural development and agricultural development policies on income disparity. These studies show that it is necessary to study on the impact of agribusiness development on income disparity further. Researches on agriculture is not only focusing on agricultural producing sector, but also focusing on other sectors in agribusiness system. Thirdly, existing researches have studied the impact of agribusiness development on relative interest groups under the framework of partial equilibrium, and provide an intuitive understanding for the analysis under the framework of general equilibrium. The conclusion from partial equilibrium may be in contrast with that from general equilibrium, however, for lack of consideration with indirect impacts. Therefore, it is necessary to adopt the general equilibrium method for analyzing the impact of agribusiness development on income disparity economy-wide. Fourthly, existing researches of social accounting matrix provide the method of considering industrial linkage and household heterogeneity under general equilibrium, and also give inspiration for this research. However, such kinds of studies have not taken into consideration of consumer’s Engel effect on agribusiness development. Meanwhile, such studies have not made detailed classification for households. Therefore, there are flaws both in study of agribusiness development and household’s income distribution. Fifthly, existing researches on computable general equilibrium provide guidance for building the consumer behavior and its impact analysis. Although such models have considered the impact of consumer’s Engel effect on agribusiness development, households in these models are representative, and they are insufficient for analyzing income disparity among heterogeneous households. Sixthly, existing researches on CGE micro-simulation models provide ideas and methods for studying households’ heterogeneity. However, such models have not considered issues like macro closure and parameters’ uncertainty, while these two issues are important for the robust of model. Our research takes both issues into account.The study provides theoretical supports and evidences for agribusiness development. This paper explores and explains the positive impact of agribusiness development on income distribution in perspectives of statistics, theory and policy simulation. This paper adopts data from international level and china’ provincial level to study and find out that agribusiness development has positive impact on income distribution in statistical perspective. This paper explains the positive impact of agribusiness development on income distribution based on the Structural Growth theory with Non-Homothetic Utility, and the Social Accounting Matrix theory with industrial linkage and households’heterogeneity. The simulation results from policy scenario based on computable general equilibrium micro simulation model support that agribusiness development has positive impact on income distribution.The study provides policymakers with a comprehensive framework for policy analysis. The study tries to combine the CGE model with micro-simulation model for application. Recent academic studies pay more attention to consider both micro data and micro behavior with macro data and macro constraints, and policymakers also concern policy’s distributional effects on different people. The slogans like "Inclusive growth" and "Sharing growth" proposed by Chinese government indicate that the goal of development is to let all people get access to share the fruits of economic growth. Although traditional CGE models also study on micro behavior, they assume few groups of representative households, so they could not reflect the difference among micro behaviors, and miss lots of important information. The CGE micro-simulation model incorporating micro household survey data into CGE model to reflect the interactive between macro and micro behaviors, and provides a perspective to utilize macro and micro data comprehensively. In addition, since the household survey contains geographical information for each household, we could simulate the impact of external shock on households’income disparity in different regions. This work provides a policy analysis tool for issues related with income distribution.The study provides new data-processing methods for theoretical researches on agribusiness and income disparity. The study improves the accounting method for measuring value added of agribusiness. Furtuoso et al.(1998) made advance on the accounting methods proposed by Davis and Goldberh(1957) and Schluter et al.(1986), however, they also neglect the part of agricultural distribution sector as input of agricultural producing sector, and overestimate the value added of agricultural distribution sector. In this study, we more this part into agricultural input sector. The study compiles a Chinese agribusiness social accounting matrix. We first compile the agribusiness input output table according to the classifications of International Standard of Industrial Classification version3.1(ISIC3.1) and Central Product Classification (CPC), and incorporate household data from China Household Income Project (CHIP) and related information to compile the agribusiness social accounting matrix with18035household. The compilation of this data provides inspiration for future researches on issues both related with macro and micro behaviors.The study deepens the understanding of the importance of agriculture in the national economy. Existing researches in development economics have focusd more on agricultural producing sector, but do not realize the importance of other sectors in agribusiness to agricultural producing sector. We contend that the role of agriculture in the national economy depends on the developments of other three sectors in agribusiness.