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This paper contributes to the economic literature in three aspects. First, it reviews rural development and infrastructure development in the People's Republic of China since 1978, and gives readers an intuitive impression of Chinese rural development and infrastructure. Second, it creates an endogenous growth model that incorporates infrastructure with both a productive and utility-enlarging function, helping to analyze the relationship between rural development and infrastructure. Third, it carries out an empirical study on the relationship between rural development and infrastructure based on theoretical model and pooled data from 29 provinces.
In reviewing the process of rural development and infrastructure development, we find that early on, rural households enjoyed the fruits of the reform of the rural household contract responsibility system, and then with the declining effect of that system and the launch of urban and enterprise reform and the open door policy, experienced a relatively stagnant period of rural development, under which the rural per capita income increased a much slower rate than urban income, worsening the income gap between rural and urban households. We also find that there is inconsistency between rural infrastructure and rural economic development: while rural households were getting richer, rural infrastructure and the rural living environment were getting worse in many regions. During urbanization and industrialization, a great number of farmers lost their land and jobs. Some took to the street to protest or appealed to higher authorities for help. Unpaid rural workers reportedly had to ask for help from premier Wen Jiabao to get their unpaid salaries. Social harmony and political stability were severely undermined. Behind these phenomena were the distorted institutional arrangements for the land ownership, household registration system, and democratic systems.
Under the newly developed model, the external effect of infrastructure on both production and consumption makes long-run economic growth possible. The model also demonstrates that a scale effect of population should be taken into consideration in infrastructure building and urbanization. In addition, the efficiency of the government's translation of tax into infrastructure is found to play an important role in economic growth. In addition to long-run endogenous growth, infrastructure investment also leads to a structural change in income and consumption.
Considering years of schooling, the high school population rate and illiteracy as proxy indices for educational infrastructure, we find that only illiteracy is statistically significant in agriculture production in the western regions. This implies that it doesn't matter how many years a peasant is educated. What matters is if illiteracy is eliminated. We also find that different types of roads have different effects on agriculture. Low standard roads have a positive effect on agricultural GDP growth and industrial GDP growth, but high standard roads only have a positive effect on the industrial sector. Regarding the implications of infrastructure on consumption, we find that electricity infrastructure has positive spillover effects on rural consumption in central and northeastern PRC, and that low standard roads have a positive spillover effect on consumption in the eastern and northeastern regions.
Since agriculture is almost running out of potential, it is difficult for rural Chinese to be better off without leaving their farmland. Therefore, the future of rural development in the long run is not in agriculture, but in the acceleration of urbanization. Since urbanization is a long process, it is important to mobilize labor and financial resources in the short run. Therefore, it is urgent to carry out rural reform in the following aspects: privatization of rural collective land, implementation of a nationwide unification of the residential registration system, expansion of rural democracy, strengthening and rebuilding of agencies for the protection and maintenance of the rural collective environment, implementation of the basic compulsory education law and the equalization of opportunities for higher education.
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