The Impact of China's Public Investments in Rural Area on Agricultural Productivity and Poverty Reduction

China’s public investments in rural area, as a whole, have been going up for many years as its whole economy develops. These include government investments in: road, land improvement, drinking water facilities, irrigation, education, health, agricultural R&D, energy supply system, and communication system. With the increases of government investments, China’s agricultural productivity witnessed steady improvements, along with rural poverty reduction at the same time. It is natural to argue that productivity increases and poverty reduction mainly result from public investment or contributions by other factors such as general economic growth and price increases. While a number of research have reached the common general conclusion that such investment do mater, it is yet to be clarified 1) to what extent total agricultural productivity changes and poverty reduction can be ascribed to public investment; 2) which public investment contribute more effectively; 3) what linkage exist between agricultural productivity and poverty reduction. Getting a clear understanding of the above relationship constitutes the main purpose of this paper. Due to the data availability, three public investments are studied in this paper, i.e.: government education expenditure in rural elementary and middle school; government expenditure in agricultural science and technology research for all investment objectives except poverty reduction; and Government investment in irrigation construction for farming, forestry, animal husbandry and fishery sectors. The data used in this paper contain information on cross-sectional units (i.e., provinces) observed over time. To deal with this pooled (or panel) data, equations of the form: yit = αit + βi’xit + εit are estimated with fixed effects. The study results in this paper point that: 1) The most efficient public investment among the three public investments is government education expenditure in rural elementary and middle school. 2) The second efficient public investment is government expenditure in agricultural science and technology research for all investment objectives except poverty reduction. 3) Government investment in irrigation construction for farming, forestry, animal husbandry and fishery sectors is more efficient than government expenditure in agricultural science and technology research for poverty reduction. 4) Generally, the least efficient public investment among the three public investments is government investment in irrigation construction for farming, forestry, animal husbandry and fishery sectors.