ABSTRACT
Policy reforms in rural China have achieved remarkable success. Since the inception of reforms in 1978, real rural per capita income has increased about fivefold; earnings were nearly tripled between 1978 and 1985, followed by a period of continued growth (see Figure 12.1). These rapid increases in income are closely associated with several specific policy measures. The adoption of the household responsibility system (HRS) and increases in state procurement prices created a profound one-time effect on earnings through increased labor effort and price incentives; they were the major sources of income growth prior to 1985 (McMillan et al., 1989; Lin, 1992). Agricultural research and technological change have also raised crop yields (Huang and Rozelle, 1996; Fan and Pardey, 1997). While the coverage of these studies extends to the collectivization period, they are primarily concerned with productivity gains within agriculture, especially during the early period of reforms. Since 1985, the growth rate of real rural per capita income still averaged around 4 percent per year, despite the fact that the influence of the HRS and price adjustments has abated. What are the major factors contributing to the continued income growth?
