Standards Driven Rural Development: A General Equilibrium Model with Market Imperfections

We develop a general equilibrium households model to analyze the effects of high standards food chains taking seriously into account market imperfections. To measure structural production changes and welfare effects on rural and urban households, our model has two types of agents, five kinds of products and four types of factors. We calibrate the model using dataset from China and do simulations through three ways: increasing world price of high standards food, increasing urban households’ preference for high standards food, and relaxing credit constraints on high standards food production. The simulation results show that how poor households are affected depends on the nature of the shocks leading to the expansion of high standards sector and the market imperfections, and whether the poor can gain through the labor market if they are excluded from high standards farming.