Nonlinear investigations of China's agricultural transformation based on the structural break regime switching model

Purpose – Investigating the characteristics of the transformation of China's agricultural growth and the institutional reforms during the whole transition period in the 1980s will help to understand China's economic and agricultural reform and offer some successful experiences to other developing countries. The purpose of this paper is to answer the following questions: Has China's agricultural output experienced a structural break toward a more stable state? When did the break point happen? What factors did play key roles during the transformation? Design/methodology/approach – This study applies the nonlinear structural break regime switching analysis which includes two different models: one with the structural break only in the variance and one with the structural break in both shift parameters and the variance. Findings – The empirical results showed that it took five years for agricultural development in China to finish the reform that began in 1980. The agricultural growth had become more stable after the break point which was around 1985-1986. Both the primary industry and agricultural sector had transformed from a “low growth rate, high volatility” state to a “high growth rate, low volatility” state. Among the different driving factors, the Household Responsibility System (HRS) and preferential policies for agricultural products played the most important roles in the early stage of the economic reform. Originality/value – The authors first study the structural break of China's agricultural output by the regime switching model. From the empirical results, the structural break point was determined to be around 1985-1986, after which China's agricultural output had become more stable.