Evaluating the Effect of Fiscal Support for Agriculture on Three-Industry Integration in Rural China

Abstract

The integration of the primary, secondary, and tertiary industries in rural areas, known as three-industry integration, is a crucial strategy for developing rural industries and implementing the rural revitalization initiative in China. The government’s fiscal support for agriculture serves as a cornerstone for the sustainable development of agriculture and rural regions. This study investigates the mechanisms through which fiscal support for agriculture facilitates the integration of the rural three-industry sectors by driving industrial innovation, enhancing the circulation of production factors, and optimizing resource utilization in rural areas. Using panel data from 30 provinces in China spanning from 2008 to 2020, we evaluate the level of three-industry integration in rural areas using an entropy method and analyze the effects of fiscal support for agriculture on this integration. Our findings reveal that: (1) fiscal support for agriculture significantly promotes the incorporated development of rural three-industry integration in China by acting as a catalyst for horizontal and vertical integration; (2) fiscal support enhances rural infrastructure quality, fosters market connectivity, and attracts business clusters, while also optimizing factor markets and facilitating the efficient allocation of land, finance, and resources, thereby enabling new business entities, such as leading enterprises, to benefit from economies of scale and to expand the rural industrial value chain; (3) the effects of fiscal support for agriculture exhibit significant regional and agricultural development heterogeneity, with Central China and major agricultural provinces demonstrating the most pronounced role in promoting rural three-industry integration.