Exploring the Impact of Irrigation on Chinaʼs Crop TFP

Abstract

Investing in agricultural infrastructure, particularly irrigation systems, is crucial for enhancing agricultural productivity and fostering rural development in developing countries. This study evaluates the impact of irrigation infrastructure investments on total factor productivity (TFP) in Chinaʼs crop industry from 1980 to 2018, and also estimates their economic returns across different sub-periods. We employ a fixed-effects instrumental variables (FE-IV) regression model combined with a structural break analysis on provincial-level data to establish the causal relationship between irrigation investments and TFP growth. The findings reveal that irrigation infrastructure investments have significantly improved TFP in Chinaʼs crop industry over the period, though the marginal returns declined in the last decade. The average internal rate of return for irrigation investments during 2002–2018 is estimated at 11.5%, which is below the long-term trend of 19.3%. This suggests potential over-investment or inefficient allocation of resources in recent years, highlighting the need for better optimisation of public investment to sustain productivity gains in agriculture. Show more