The Diminishing Influences of Agricultural Output Changes on General Price Changes in China

Purpose - The paper aims to assess the impact of agricultural output changes on the general price level over time with China as an example. Design/methodology/approach - A simple numerical global general equilibrium (GE) model of two regions (China and the rest of the world) and three commodities (agriculture, manufacturing goods, and services) is used to assess the impacts of agricultural output changes on the overall economy price changes. The numerical GE model of this paper consists of production, final consumption, and market clear conditions. The results are generated with the GE model calibrated to aggregated China's input-output tables of 1987, 1997, and 2005. Findings - The results suggest that China witnessed a declining influence of agricultural output changes on general price changes. The contribution of given agricultural output change on the general price change in 2005 was merely less than 60 percent of that in 1987, which in turn implies that macro policies targeting to curb general inflation via boosting agricultural output will be less effective as those of 20 years ago. Practical implications - China's policy makers should rely less and less on promoting agricultural output policies to fight against general inflation and should resort to non-agricultural policies. Originality/value - The paper argues that the influence of agriculture on the China's general price indices has been weakening along with China's economic development with a numerical GE model calibrated to aggregated China's input-output tables of 1987, 1997, and 2005.