A factor market is a marketplace for the services of a factor of production. They facilitate the purchase and sale of services of factors of production, which include inputs such as labour, capital, land and raw materials which are used to make a finished product. This is distinct from the goods and services market, which focuses on finished products or services. Understanding the relationship between factor markets can help better understand the agrarian economy in rural areas. Economists can form hypotheses about the relation of the equilibrium percentage of area under tenancy with factors such as land quality, labour-intensity of crops, extent of unemployment, interest rates, weather uncertainty and other related factors. These economic hypotheses can be aided by findings from social anthropologists, which can help to enhance knowledge about the nature of rural markets. In this vein, Dr Yiming He focused his research on Canton land owners who were transferring farmland property rights, migrating them from a rural to an urban area. His work investigated how the farmland property rights transfer impacted rural labour migration behaviour.
Factor market linkage
The scientific literature on factor market linkage can be divided into two branches. The first of these branches focuses on the credit market and includes analysis of markets such as labour and land. For example, previous researchers have examined interlocked transactions between traders and land owners in the cotton and wheat markets in Sindh in Pakistan, which facilitate the provision of credit by traders. This demonstrated that traders lend to land owners in a segment of the credit market which approximates competitive behaviour, without surplus extraction by traders. Although a great deal of attention has recently been dedicated to agrarian credit markets, the potential for interlinked credit marketing arrangements for particular cash crops to promote food crop intensification remains strong. Research has shown that households engaging in interlinked marketing programmes for selected cash crops applied significantly greater fertiliser on other crops (primarily cereals) which were not directly purchased by the cash crop trading firm.
The second of the branches in the literature on market linkage focuses on interlinked contracts. Previous studies have explored the nature of interlinked contracts under adverse selection. Interlinked contracts are when the same individual provides both land and credit, for example. Adverse selection is a situation where sellers have information that buyers do not have, or vice versa, about some aspect of product quality. Previous research has found that interlinkage of contracts reduces investment compared with non-interlinked contracts. Other studies have proposed a new rationale for the existence of inter-linked contracts in the agrarian economies of developing countries. This was achieved through the demonstration of the way in which interlinked contracts can help the dominant parties to collude in cases where collusion is not possible with non-interlinked contracts, such as those between the markets for credit and share tenancy.
Interlinked factor markets may be considered to be an “efficiency improving institutional change” in rural agrarian economies. There is an emerging body of literature analysing how smallholder farmers in developing countries can be linked with modern supply chains. However, most of the available evidence focuses on farm and farmer characteristics, neglecting the details of institutional arrangements between farmers and traders of agricultural production factors. One study attempted to address this gap by analysing different market channels for sweet pepper in Thailand. Researchers found that additional provision of inputs and credit increased the attractiveness of contracts in the interlinking factor markets. Other research has demonstrated that if factor markets are based on cooperative contracts in adverse selection environments, the allocation of resources in the interlinking factor markets is more favourable.
Farmland transfer and rural labour mobility
Dr Yiming He used a survey of farmland households in Canton, China to explore problems arising with moving from rural labour mobility to urban. The work aimed to determine whether the transfer of farmland or property rights led to rural labour mobility. Data for the study was taken from the Land Resource Management Study (LRMS). The LRMS is conducted annually by the South China Agriculture University of the National Agricultural Institution and Development Institute. The survey collects cross-sectional data (data from one point in time) from 547 rural labour mobility observations from 600 households in 60 villages.
The target population of the survey is farm households which are associated with farmland leasing businesses in 15 representative cities in Guangdong Province of China. These cities include Chaozhou, Meizhou, Jieyang, Heyuan, Shanwei, Huizhou, Shaoguan, Qingyuan, Guangzhou, Zhaoqing, Zhongshan, Zhuhai, Yangjiang, Maoming and Zhanjiang. A farm is defined as an establishment which leases or would normally have transfer rural land use rights during the year. Farms can be organised as proprietorships, partnerships, family corporations, nonfamily corporations, or cooperatives. Data is collected from the farm operator for each farm. A head farm operator is the individual who makes most of the daily management decisions. In Dr Yiming He’s study, operator households were organised as nonfamily corporations or cooperatives, with farms run by hired managers being excluded from the research.
Dr Yiming He’s research used theoretical models, which generated two important propositions. The first of these was that the transfer of farmland would reduce the farmer’s ability to be self-sufficient, which is known as autarky. The second proposition was that if the farmer’s utility level declines, his or her labour contribution to operating farmland and producing agricultural product also decreases. This suggests that an increasing amount of rural labour would migrate into non-agricultural production industries in urban areas. The overall hypothesis generated from the theoretical models was that the transfer of farmland would drive rural labour mobility. The economic explanation of the hypothesis is that the farmland transfer market interlinks with the rural labour market in a non-specialised production system.
The hypotheses generated from these theoretical models were then tested using data from the survey using a method called econometrics. This method refers to the application of statistical models to economic data in order to gain empirical evidence of economic relationships. It enables economists to sift through large amounts of data, such as the LRMS to find simple relationships between variables, such as the link between farmland transfer and rural mobility. Dr Yiming He’s findings using econometrics confirmed the hypotheses generated: he demonstrated that the farmland transfer market does interlink with the rural labour market in a non-specialised production system. Future research could use field data from rural areas where markets are interlinked. This would allow researchers to explore whether rural labour market structure and rural financial market reform are altered when farmland transfer markets are expanded.
- Lai, D., Huang, H., Du, Z., & He, Y. (2017). Market Interlinked, System Non-specialized: Farmland Transfer Impacts on Rural Labor Mobility. Journal of Finance and Economics, 5(5), 233-239.
Dr He’s work aims to determine how farmland property rights transfer impacts rural labour migration behaviour.
This work was supported by National Ten Thousand Outstanding Young Scholar Program (Grant Number: W02070352) as well as Key Project of National Natural Science Foundation in China (Grant Number: 71742003).
Dr He is a South China Agriculture University PhD, Professor and PhD Advisor, who won the Ten Thousand Program of the national youth talent support project, national natural science twice, national social science three times, and China Scholarship Council visiting scholar program. He has published more than eighty papers on Man and the Economy and Energy Economics. Dr Yiming He is also the Ronald Coase Institute Young Fellow, Hong Kong Baptism University Adjunct Researcher and The University of Texas Visiting Professor.
Dr Yiming He
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