An Intersectoral Perspective on the Relationship between the Agricultural and Industrial Sectors in Chinese Economic Development

In a developing economy characterized by economic dualism, the interrelationship between the growth of the agricultural sector and that of the industrial sector is crucial for overall development. Theoretically, the agricultural and industrial sectors are closely linked. Agricultural progress would depend increasingly on the growth of industrial development and vice versa. However, no mutual dependency occurred in the Chinese economic development process. A causality test between the agricultural and industrial sectors of the Chinese economy indicates no cause-effect relationship. Growth models for the agricultural and industrial sectors were estimated using two-stage least squares. Labour productivity was low in China's agricultural sector before 1979, and the marginal productivity of labour was negative. Labour productivity and capital productivity in the industrial sector were also low. China's industrial development was mainly capital intensive and took place at the expense of the traditional agricultural sector. Labour productivity in the agricultural sector increased significantly after 1979, while productivity in the industrial sector decreased. This indicates that economic reform positively affected the agricultural sector in terms of labour productivity but negatively affected the industrial sector. Rural peasants have supported market-oriented economic reform more enthusiastically than urban people.