Land certification, rental market participation, and household welfare in rural China

Abstract The 2009 land reform in China marks a move toward a more flexible land tenure system in rural areas. This study evaluates the effect of this reform on rental market participation and household welfare in rural China. Using a four‐period nationally representative household‐level panel data during 2010–2016, we find that the 2009 land reform increased rental market participation by 6.6 to 7.0 percentage points on average. The effect varies significantly with village and household characteristics. The welfare impact of rental market participation on rural households depends on the type of participation. Specifically, the households renting in land witness an increase in their aggregated income by 10.7% on average through the expansion of farm production, which is accompanied by an increase in aggregated expenditure by approximately 11.2%. Those leasing out their land lose the portion of income on the farm but the aggregated household income is on average statistically unchanged, possibly due to a higher off‐farm income and the inflow of land rental income. Along with the statistically unchanged aggregated expenditure, the households leasing out land experience no significant welfare changes after the 2009 land reform.