Effects of agricultural production fluctuations on the Chinese macroeconomy

Based on a macro-model framed in terms of China's agricultural, industrial, government and household sectors, this paper aims to identify the effects of agricultural production fluctuations on the Chinese macroeconomy over the period 1949-89. Using annual national time-series data, Granger-causality tests indicate that fluctuations in China's agricultural production have been a statistically significant cause of changes in other types of Chinese macroeconomic activity. Impulse response analysis shows that shocks in China's agricultural production were followed by analogous responses in national consumption, industrial output, investment, exports and income which peaked with a two-year lag and vanished after 6 years. Variance decomposition analysis indicates that changes in China's agricultural production were the most important determinant of changes in the level of national consumption and the second most important determinant of changes in the level of industrial production, national investment, exports and national income.