The impact of integrated agricultural water pricing reform on farmers' income in China

Abstract

Given its status as the largest water-using sector, it remains pivotal to enhance the water usage efficiency within the agricultural sector to safeguard water resources. The main goal of the Integrated Agricultural Water Pricing Reform (IAWPR) is to encourage water conservation and foster sustainable agricultural development. Nonetheless, achieving sustainable progress in agriculture necessitates a dual focus: not only on the sustainable exploitation of resources but also on upholding the welfare of the population. The impact of the policy on farmers' welfare is not straightforward and requires scientific verification. To this end, the study focuses on the new relationship between IAWPR and farmers' income, exploring its underlying mechanism to broaden the economic benefits of IAWPR. In addition, combining multi-phase Difference-in-Differences (DID) and biennial Malmquist-Luenberger (BML) productivity index overcomes the limitations of traditional measurement methods. The results indicate that the IAWPR has a significant positive impact on farmers, leading to a 31.9% increase in income, and the impact is even more pronounced in the non-farm sector. Furthermore, the IAWPR primarily operates through enhancing agricultural green total factor productivity (AGTFP), where technological change (TC) serves as the principal driving factor of improvements in agricultural efficiency.

Keywords

• IAWPR
• Multi-period DID
• Agricultural green total factor productivity
• Farm household income