Will interest rate liberalization speed up the departure of capital from agricultural sector?
(2.Department of Economics, University of Indiana, Bloomington, America)
【Abstract】During the long-term modernization process in China, capital and labor will inevitably flow from the traditional agricultural sector to industry and service sectors. However, rapid de-agricultural tendency will threaten the nation’s food security and social stability. In order to explore whether the financial reform, especially the liberalization of interest rate, will speed up the departure of capital from the agricultural sector, this paper constructs a two-sector dynamic stochastic general equilibrium model with heterogeneous credit constraints. We found that the increase in interest rate by 1 percentage point will make industrial output decrease by 1%; in addition, due to the strict control on the flow of agricultural land, China ’s agricultural output will not reduce significantly. However, once land red line regulation is out of control, there will be a large amount of capital departure from agricultural sector, and agriculture sector will shrink rapidly. In the future, we need to keep control of the flow of agricultural land, and increase the effective mortgage rate of land to address the phenomenon of capital departure from agricultural sector.
【Keywords】 interest rate liberalization; DSGE; departure of capital from agricultural sector; heterogeneous credit constraints;
(Translated by LINmanzhen)
. ① The land flow control discussed in this paper refers to the agricultural land (farmland) with the protection of red line, that is, the land cannot flow freely between agricultural and industrial sectors. The agricultural land cannot be converted into industrial land, but can be transferred within the agricultural sector. At present, the red line of cultivated land in China is 18 million mu. [^Back]
. ② All the letters with “^” are the variables standardized by the amount of currency. The following are set the same. [^Back]
. ③ They include seeds, fertilizers, pesticides and irrigation. [^Back]
. ④ Here the setting of Rt is similar to that in McCandless (2008). The amount of deposits put in the bank determines the payment of interest, but because it is paid during the period, the interest rate possesses the dual attributes of the nominal amount and the actual amount. [^Back]
. ⑤ The output of the industrial sector in Table 2 and Table 3 is not only the industrial intermediate product produced by the industrial sector, but also includes the industrial investment goods and the agricultural production materials sold to the agricultural sector. [^Back]
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