In this paper we examine the role of the interaction between labour productivity and the use of factors in explaining the recent (1998-2007) 11% decline in wheat production in China. We employ a non-neutral stochastic production frontier approach that enables us to identify the interaction and non-neutral effects of factors that are used in wheat production. For regional level wheat production in China we find that identifying the technical inefficiency effects and the non-neutral effects of factors assist big time in explaining the recent decline in wheat production. A higher level of labour productivity can stimulate efficiency gains in production, but adding more labour to the workforce or adding to the stock of machinery power can depress this potential marginal efficiency gain. We also find significant marginal efficiency gain of land reforms that add to the stock of cultivable land. Our results indicate that future agricultural reforms in China should address the incentive scheme for labour.
China Stochastic Frontier Factor Interaction Nonneutrality Agriculture Wheat Production