In China, the local agricultural and forest collectives own 62% of all the forests [1
]. Since the founding of the People’s Republic of China in 1949, Chinese tenure institutions of forestland have experienced a series of fundamental changes [2
]. The radical and frequent institutional reversals in property rights induced by these changes have severely dampened households’ forestry investment incentives [2
]. Thus, beginning in the late 1990s and continuing into the early twenty-first century, to motivate households to conduct forestry investments, the Chinese central government initiated a new round of collective forest tenure reforms (collectively referred to as Tenure Reform), including the 1998 Land Management Law
, the 2002 Rural Land Contract Law
, the 2003 Resolution on the Development of Forestry
, and the 2007 Property Law
]. Generally, the Tenure Reform can be partitioned into two parts: the main reform and the supplementary reform. The main reform is about devolving the use right of collective forests by issuing households with legal certificates. After the main reform was finished by 2012, 180.64 million hectares of collective forests, which account for 99% of China’s total collective forest area and 60.02% of China’s total forest area, was devolved to households by use right transfer [1
]. These forests accommodate 71% of domestic timber production. In the supplementary reform, the disposition right, beneficiary right, and corresponding property right policies of forests became more intact and secure [2
]. Since 90% of China’s forests are located in mountainous areas and 86% of rural households in poverty live in the same areas, China’s government places high expectations on the investment incentive and poverty alleviation effects of the Tenure Reform [1
The Tenure Reform has substantially improved the property rights of household forests [6
]. Secure property rights can enhance the profitability and exclusivity of assets, reduce investment risk, and increase the efficiency of factor allocation. Therefore, it is anticipated that the Tenure Reform will motivate households’ forestry investments and, subsequently, enhance household forestry income [7
]. However, conclusions regarding the effects of the Tenure Reform on forestry investments are ambiguous. Some studies have indicated that the investment incentive effect exists by comparing household forestry investments before and after the Tenure Reform [8
], and others have even indicated that the Tenure Reform has enhanced household forestry income because of the increase in their forestry investments [10
]. On the other hand, some studies have concluded that the Tenure Reform does not achieve its desired effects [12
]; many papers argue that the Tenure Reform has caused serious fragmentation of forestland and had an adverse effect on the efficiency of forestry production [12
]. The redistribution of forests to households has ostensibly promoted equality and production, but the management costs have been increased significantly [13
]. Consequently, households’ forestry investment incentives are still at a relatively low level. For example, Yu et al. [14
] observed that only 44% of the farmers living in collective forest regions under the Tenure Reform would be likely to reinvest in forestry production.
China’s government started to construct democratic village institutions in December 1982, when the new constitution legally approved that the village committee is the essential rural grassroots mass autonomous organization and has the right to elect the village leaders and villagers’ representatives by villager voting. The legalization of village-level democratic elections is acknowledged as a vital improvement, which is a significant starting point of China’s democratization. During the last thirty years, China’s government has gradually developed village-level democratic decision-making, democratic management and democratic supervision mechanisms. This has improved rural welfare and self-governance dramatically [15
]. To guarantee policy fairness and efficiency, national regulations of the Tenure Reform stipulate that every village should democratically vote for their own decision on whether to conduct the Tenure Reform. Also, each village committee that decides to enforce the Tenure Reform should draw up its reform scheme and formulate corresponding policies through village-level democratic procedures [16
]. In this study, we define village self-governance activities and household political participation as village democracy, which includes democratic election, decision-making, management, and supervision processes.
Although China’s democratic system has attributes that differ to those of Western developed countries’ democracies [17
], village democracy can be expected to strengthen the investment incentive effect of the improved property rights under the Tenure Reform in at least two ways. First, if village democracy were sound, farmers’ perception and cognition of the benefits of the improved property rights would be boosted through the democratic procedures of publicity, discussion, decision, and supervision under the reform. Second, farmers would have more confidence that the improved property rights structure would be stable and the production benefits from the Tenure Reform would not be taken away coercively if they have participated in designing the policies and voted for them [17
]. In general, farmers would have more positive expectations and incentives for engaging in forestry production. However, empirical evidence on whether village democracy has affected households’ use of labor and monetary expenditure in forestry is weak. Furthermore, the way that village democracy works in the Tenure Reform remains unclear. Thus, our inquiry in China will especially seek further evidence of the role of village democracy in the investment incentive effect of the Tenure Reform.
Although a plethora of papers have investigated the consequences of the Tenure Reform [19
], research that investigates the effects of village democracy on the performance of the Tenure Reform is rare. Village democratization in rural China has been found to have profound impacts on many socio-economic developments. Existing studies on the subject can be classified into two groups. One group of studies describes the development of Chinese village democratization, such as the Chinese villages’ path to democracy [21
], determinants of village democracy [22
], and factors impeding democratic rules [21
]. The other group of studies identifies the consequences of the democratization, including how village democratization affects household agricultural production [23
], rural self-governance [24
], and household welfare [25
]. Despite this, to date and to the best of our knowledge, only one study by Zhang et al. [26
] has investigated the difference in the investment incentive performance of the Tenure Reform between the villages that conducted democratic procedures and those that did not. They [26
] found that the Tenure Reform could motivate households to conduct further forestry investments, but the effect was only found in the villages that democratically implemented the Tenure Reform. However, they [26
] did not systematically measure the improved forest property rights and the village democracy involved in the process of the Tenure Reform implementation. Specifically, Zhang et al. [26
] used dummy variables to measure village democracy and the Tenure Reform. These issues may thus limit the usefulness of conclusions of this initial study. In our study, we will try to fill these research gaps.
The purpose of the present study is to investigate the effect of improved property rights and, in particular, the effects of village democracy under the Tenure Reform on household forestry investments. Based on a conceptual framework, we hypothesize that improved property rights and village democracy both have direct positive effects on household forestry investments under the Tenure Reform. In addition, we hypothesize that the higher the level of the village democracy, the stronger the effect of property rights on the farmers’ investment incentives. A survey data collected for the purpose of this study and econometric methods of discrete and limited dependent variables are used to investigate these hypotheses empirically.
Our results on the effects of property rights on investments are mainly in line with earlier research on the effect of Tenure Reform [4
]. However, one of our extensions upon Zhang et al.’s [26
] study is that we actually measured the household property rights using the right components, which are use right, disposition right, and beneficiary right. Based on this, an unexpected finding was that, for those households that invested in forestry production, the improved beneficiary right did not have a significant effect on households’ quantity of either labor or capital investments.
The results of our study also reflect the significant role of village democracy in the implementation of the Tenure Reform. The results indicate that the higher the level of the village democracy, the stronger the effect of property rights on the farmers’ investment incentives. The interpretation of this result may be that the implementation of the democratic procedures increased households’ perception, cognition, and, subsequently, their confidence toward the benefits and security of, in particular, forestland use and disposition rights. The result is in accordance with the study by Zhang et al. [26
], which used dummy variables to measure village democracy and the Tenure Reform, and concluded that the Tenure Reform only improved farmers’ incentives to invest in forestry only if the villages conducted the Tenure Reform democratically.
In line with earlier findings [53
], our results also indicate that the bigger the total household forestland, the stronger their investment incentives are. This might be because the bigger total forestland area enables households to achieve economies of scale more efficiently. Another interesting finding is that the education level of household heads was significantly and negatively affecting their probability of conducting investments but positively related to the quantity of their investments. In spite of this, the unconditional total effect of education on forestry labor was positive and significant in the tobit model for own labor investment, but not significant in the model for monetary investments. One possible explanation for this finding is that household heads with a better educational background are usually likely to find non-farm employment and will allocate fewer resources to forestry. Nevertheless, those households that decide to invest in forestry, usually tend to invest more because their relatively better education level enables them to manage the forestry production more efficiently and profitably.
Our results suggest that governments could improve the performance of public policies by effectively enforcing democratic procedures in the process of policy implementation. Therefore, there is impetus for China’s government to further carry the construction of a village democracy system forward. For instance, government could strengthen farmers’ discourse power in the decision-making of public affairs and then more deeply manifest grassroots policy needs by strictly employing village democratic procedures.
Another critical aspect is that to increase the investment incentive effect of the Tenure Reform further, governments should strengthen households’ use and disposition rights bundles and related policies. In addition, our results show that household beneficiary rights had no positive effect on farmers’ forestry investments, which might presumably suggest that the beneficiary rights have not been adequately improved. Moreover, to enhance households’ confidence in the property rights of the forests in the future, related administrative departments could further guide households to correctly and fully understand their rights concerning the forests entitled to them.
Institutions take a long time to become fully developed and incorporated as part of peoples’ habitual thoughts and actions [4
]. As a shortcoming, our findings were only based on cross-sectional data from selected regions. This may limit the generalizability of our conclusions. Future research for enriching the understanding of the effect of village democracy in the process of other public policy implementation could potentially proceed with larger-scale and long-term empirical research designs to test the robustness of our findings and, furthermore, capture the dynamic change of the relationship between village democracy and the performance of public policies. In addition, future studies could also take the possible simultaneity between forestry labor and monetary inputs into account.
In this study, we tested the effects of property rights and village democracy on household forestry investments. Moreover, we were interested in particular in the effects of the interaction terms that investigate the strengthening effect of village democracy on the investment incentive effect of the improved property rights induced by the Tenure Reform. We estimated three different models, the tobit model for limited dependent variable (investments ≥ 0), the binary probit model for the qualitative decision to invest or not (there were investments = 1; otherwise = 0), and a truncated regression model for those households that had invested in forestry after the Tenure Reform. As the tobit model assumption was rejected by the likelihood ratio tests, both in the case of households’ own labor and monetary forestry investments, the results of the tobit model should be considered with caution. Therefore, we discuss the empirical results mainly based on the binary probit models for the whole sample and truncated regression models for nonlimit households.
The empirical results reveal that the improved use right and disposition right had a significant positive effect on both the probability and quantity of households investing labor and capital in forestry. However, the beneficiary right only increased the probability of households conducting labor and capital investments without a statistically significant effect on the size of the investments. In spite of this, the total unconditional effect of the beneficiary right on both households’ own labor and monetary inputs into forestry was statistically significant, although for the labor input only at the 10% risk level. In addition, the results suggest that village democracy had a positive effect on households’ forestry investments. Furthermore, the results are consistent with the hypothesis that village democracy also strengthened the investment incentive effect of the improved property rights, which could be seen from the statistically significant coefficients of the interaction terms of village democracy and households’ forestland use and disposition rights.