Machinery investment decision and off-farm employment in rural China

This paper investigates the endogenous linkages between farmers' machinery investment decision and off-farm employment in China. Both the theoretical model and the empirical results based on a survey of 453 households in Anhui Province indicate that agricultural labor input and small-sized machinery investment are gross complements rather than substitutes when machinery services are available in the market. Consequently, farmers with small-sized machinery are more likely to reduce their off-farm employment time. On the other hand, an increase in off-farm employment is more likely to reduce the possibility of possessing small-sized machineries mainly due to substitution effects of market machinery services.

► Farm labor and farm machinery are gross complements for households in rural China. ► Possessing small machinery reduces off-farm employment time. ► Participation in off-farm activities reduces the possibility of owning farm machinery. ► Subsidizing large machinery could induce off-farm labor supply.