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.

1. Introduction

The integration of the primary, secondary, and tertiary industries in rural areas, known as three-industry integration, serves as both the focal point and a critical breakthrough for rural revitalization. It represents an important initiative in broadening farmers’ incomes and is an essential imperative for exploring the unique path towards agricultural modernization in China [1,2,3]. In the The Outline of the 14th Five-Year Plan for the National Economic and Social Development of the People’s Republic of China and the Vision 2035, it is explicitly stated that three-industry integration in rural areas must continue to be promoted. This involves extending the agricultural industry chain and diversifying the economic landscape in rural areas. The concept of rural three-industry integration revolves around agriculture as its fundamental pillar, employing mechanisms such as industrial linkage, industrial agglomeration, technological penetration, and institutional innovation to facilitate the intensive allocation of capital, technology, and resource elements. This integration organically combines farming production, processing and marketing of agricultural products, catering, leisure, and other service industries, fostering close interconnection and collaborative development among the primary, secondary, and tertiary industries in rural areas. Ultimately, it aims to extend the agricultural industry chain, harness the multifunctionality of agriculture, and promote urban–rural integration development [1,4,5]. In essence, rural three-industry integration signifies the advanced stage of agricultural industrialization and represents a new mission for the development of agricultural industrialization in China under the new normal economic development [2,6].

In recent years, China has made significant strides in rural three-industry integration, increasing the commercialization of agriculture. With the increasing need for finance and credit [7,8], certain notable challenges persist due to subjective and objective factors. These challenges include weak foundations in agricultural development in some areas, insufficient operational capacity among key stakeholders, deficiencies in the market system’s supply factor, and evident gaps in infrastructure. These issues have inhibited the progress of rural three-industry integration. With the increase in government’s fiscal support for agriculture and rural areas [9], the importance of fiscal support for agriculture has become more pronounced and evident in various aspects. Firstly, the public nature of food security in the agricultural sector, externalities of agricultural infrastructure, and other industrial characteristics necessitate fiscal support for agriculture. Secondly, market-related factors, such as long production cycles and price volatility, underscore the insufficiency of investment incentives. Fiscal support for agriculture serves as a crucial financial source to bolster agriculture development [10]. Lastly, fiscal support for agriculture could support and guide the integrated development of primary, secondary, and tertiary industries, to a certain extent, ultimately fostering the integration and optimal restructuring of rural industries and advancing the construction of a modern agricultural industrial system [11,12].

Existing studies regarding rural three-industry integration have examined the supportive effects of technology, production factors, and urbanization. Rural digitization, for instance, can effectively promote rural three-industry integration by elevating levels of technological innovation [13,14]. In China, the rapid development of rural finance, supported by government policies and the establishment of new rural financial institutions such as village banks, loan companies, and cooperatives, has positively affected farmers’ participation in new agricultural management organizations, thereby encouraging more rural residents to engage in rural industrial integration. Moreover, digital inclusive finance has played a significant role in promoting rural three-industry integration by improving payment convenience and alleviating financing constraints [15]. Urbanization also contributes to rural three-industry integration, although its effectiveness is contingent on the level of fiscal support for agriculture [16].

Through a comprehensive literature review, we found that existing studies primarily focus on the mechanisms and effects of fiscal support for agriculture (or fiscal agricultural expenditures) on agricultural industrialization. Specifically, fiscal support for agriculture is found to facilitate agricultural industrialization by guiding capital and labor flows and adjusting the structure of agricultural development through rural infrastructures [17]. Notably, previous studies have also shown that fiscal support for agriculture has played a pivotal role in driving the construction of agricultural infrastructure, enhancing labor mobility by boosting total factor productivity in both agricultural and non-agricultural sectors, improving the operational efficiency of small-scale farming, encouraging large-scale crop production, and facilitating structural adjustments in agricultural development, thereby supporting the advancement of agricultural industrialization [18,19,20,21].

While existing studies have not directly addressed rural three-industry integration, they have indirectly underscored the role of fiscal support for agriculture in promoting such integration from various perspectives. However, limited research has specifically investigated the impact of fiscal support for agriculture on rural three-industry integration, with most studies focusing on the theoretical framework. For example, studies utilizing general equilibrium models have highlighted how rural financial subsidies can foster rural three-industry integration and reduce urban–rural disparities [22]. Moreover, synergistic cooperation among fiscal support for agriculture, agricultural credit, and agricultural insurance have been shown to expedite rural three-industry integration by guiding the flow of capital to the rural sector [23].

In light of the gaps identified in the existing research, there is a need for a more in-depth analysis of the effects of China’s fiscal support for agriculture on rural three-industry integration, particularly in the context of the country’s rural revitalization strategy and early-stage pilot projects on rural industrial integration. Thus, this study aims to: (1) systematically elucidate the mechanisms and potential pathways through which fiscal support for agriculture influences rural three-industry integration; (2) empirically investigate these effects using provincial panel data from 2008 to 2020, analyzing the regional and agricultural development heterogeneity in China; and (3) specifically examine the mechanism by which fiscal support for agriculture impacts rural three-industry integration.

The remainder of this study is structured as follows: Section 2 presents the theoretical analysis and the research hypotheses; Section 3 outlines the study design, including model construction, considered variables, and data description; Section 4 presents the main results of the empirical analysis; Section 4 discusses the results of mechanism testing; and Section 5 provides important policy recommendations and the conclusion.

2. Theoretical Analysis and Hypothesis

Rural three-industry integration is centered around agriculture to achieve horizontal and vertical industrial integration. However, due to the underutilization of the multiple functions of agriculture in rural areas, agriculture still mainly provides primary agricultural products. Specifically, the function of agriculture remains at the bottom of the supply chain by providing primary agricultural products, and its functions in cultural heritage, as well as the ecological popularization of science, health, and old-age care, have not been fully tapped [24,25], making it challenging to generate new forms of business and achieve a high level of development of rural three-industry integration. By promoting new business generation, encouraging innovation, and leveraging science and technology in rural areas, fiscal support for agriculture can promote the development of new business forms and foster industry integration [26,27]. This can be achieved through specific mechanisms. Firstly, fiscal support for agriculture could facilitate the development of agritourism and rural complex ecosystems through investment, subsidies, and other financial support. Agritourism and rural complex ecosystems serve as effective models for rural three-industry integration by combining agricultural production with the processing of agricultural products, health and wellness tourism, ecological agriculture, and other related businesses [3]. Secondly, fiscal support for agriculture can stimulate the innovation of graduates and individuals returning to rural areas through government initiatives and other channels, leading to the creation of new services and businesses that promote rural three-industry integration. Lastly, investments in science and technology within agricultural financial support have continuously advanced agricultural science and technology, fostering innovation in production techniques and equipment, and accelerating the dissemination and application of agricultural scientific and technological advancements [21]. These efforts have contributed to the integration of the three sectors of the rural economy. Therefore, we propose the following main hypothesis:

Hypothesis 0 (H0).

Fiscal support for agriculture could promote rural three-industry integration.

In the meantime, the external support for rural three-industry integration is still unsound, and the infrastructure in some areas is weak, while there are elemental bottlenecks in the integration of the industry, and there are insufficient input factors, such as land and capital, which has become a major constraint to the promotion of rural three-industry integration in rural China [2,28]. Because fiscal support for agriculture is an important embodiment of the function of perfecting public finance, which can optimize the allocation of public products [11], it could play an important role in promoting the emergence of new rural industries, providing infrastructure, and perfecting the factor market, etc. Thus, fiscal support for agriculture can be used to promote three-industry integration in rural areas and can also form a synergy with the market to solve the above problems and exert a positive impact on three-industry integration in rural areas. Specifically, fiscal support for agriculture can promote the construction of infrastructure, support rural land transfer, guide the allocation of financial resources, and promote the development of rural three-industry integration. Therefore, we will clarify some indirect mechanisms as follows.

2.1. Promoting Three-Industry Integration through Investment in Rural Infrastructure

Under the characteristics of China’s traditional agricultural production system, the agricultural investment cycle is long and slow, and is greatly affected by natural disasters. In some areas, the level of agricultural infrastructure and the overall business environment is subpar, leading to a lack of effective expectations and confidence in social capital investment in the agricultural sector [29,30]. Relying solely on the market mechanism proves challenging in establishing an effective supply of rural infrastructure; thus, fiscal expenditure for agriculture has become a complementary measure to support the infrastructure development in the agriculture sector [31].

To ensure better rural and social development, it is necessary to create an appropriate institutional environment to achieve better knowledge, skills, and management of the rural population by supporting more entrepreneurial activities [32,33,34]. Essentially, rural infrastructure fills such a role for rural development, enhancing the business environment and encouraging enterprises to cluster in rural areas and establish the flow of production factors to these regions, thus fostering the development of rural three-industry integration. To be specific, robust infrastructure conditions can improve the business environment in rural areas, reduce the cost of enterprises, and increase the possibility of regional industrial agglomeration, industrial convergence, and business integration. As enterprises congregate in rural areas, some can pursue production activities across different stages of the supply chain, effectively linking the raw material market, agricultural product production market, processing market, and sales market, thereby extending the industrial chain. Others can leverage their technological advantages to venture into new businesses, such as facility-based agriculture, recreational agriculture, eco-agriculture, digital agriculture, rural tourism, etc., showcasing the ecological function and economic value of rural areas and realizing horizontal industrial integration.

Furthermore, infrastructure construction facilitates the creation of industrial facilities platforms in rural areas, enabling effective connections with domestic and international markets. Under the unified big market environment proposed by the Chinese government, the geographical distance has been shortened, and rural business entities can intensively integrate various production factors, facilitating the two-way flow of capital, information, labor, science, and technology between urban and rural areas [35,36]. This integration leads to a deep intertwining of rural and urban areas in terms of population, function, culture, etc., advancing the integrated development of urban and rural areas, greatly enhancing the economic strength of rural areas, improving technology and knowledge dissemination efficiency, and propelling rural three-industry integration [37]. Moreover, market dynamics improve, and rural business entities can cater to a larger market, meeting diverse market player needs and reducing transaction costs. Thus, rural business entities, leveraging their factor advantages, organizational strengths, and management expertise, can extend the agricultural industry chain, fostering the development of new business forms such as facility-based agriculture, eco-agriculture, and other agriculture-based industries to expand the industry chain.

Therefore, the following hypothesis is proposed:

Hypothesis 1 (H1).

Fiscal support for agriculture could promote rural three-industry integration through the investment in rural infrastructure.

2.2. Promoting Rural Three-Industry Integration by Facilitating the Transfer of Rural Land

At present, there are substantial within-village frictions regarding both the land and capital markets linked to land institutions in rural China that disproportionately constrain more productive farmers [38]. The insufficient supply of land has become a prominent constraint in promoting three-industry integration in China’s rural areas [28]. For example, it is difficult to meet the land demand for business, warehousing, and large-scale training sites for e-commerce in some rural areas. Concurrently, in the context of the steady increase in China’s urbanization rate, the labor force has moved to the urban areas, and agricultural land has been left idle or abandoned in large quantities [39]. Land abandonment leads to a decrease in farming activities, a loss of biodiversity, and a decline in the population of species that have adapted to the environment [40]. To solve this issue, fiscal support for agriculture can effectively create a favorable land transfer environment for rural areas so that the abandoned farmland could be transferred to various operating or business entities expressing the demand for agricultural land.

In practice, fiscal support for agriculture can directly and indirectly promote the transfer of agricultural land. Specifically, from the level of direct promotion, part of the funds from fiscal expenditure on agricultural support directly contribute to the soundness and perfection of the land transfer system. At present, local governments are gradually increasing fiscal support for the construction of rural land transfer and property rights centers, purchasing related legal services to help solve the problem of rural land transfer, lower transaction costs, and agricultural investment [11,41]. Thus, reducing transaction costs in land rental markets could help to realize significant additional productivity gains [42,43]. From the indirect promotion level, agricultural subsidies can directly impact the land transfer behavior of farmers [44]. Regarding farmers’ behavior regarding land transfer-out, under the “three rural” issues concerning agriculture, the countryside, and farmers, China has introduced several policies related to the fiscal support for agriculture, constantly increasing the subsidies to agriculture in order to enhance the benefits and lower the costs. The expectation of land appreciation, which leads to land transfer rent increase, could enhance the incentive for farmers to transfer-out of their farmlands and rejuvenate the land trading market [45]. Moreover, the government can use public funding to implement training programs for these farmers, improving their off-farm working skills, which also reduces farmers’ land transferring costs and further promotes their land transfer activities in the market. Since the Chinese government has established the Agricultural Land Transfer Fund and the Rural Land Transfer Risk Fund, these government supports can effectively reduce the cost of land transfer through tax reduction and exemption policies. Thus, rural business entities with high production efficiency could sign land transfer contracts with farmers who seek off-farm work and use farmlands efficiently to achieve large-scale land management.

The formalization of leasing rights resulted in a redistribution of land toward more-productive farmers, such as new business entities. Consequently, the exchange of land will improve productivity; enhance access to capital, technology, and knowledge; and hence, stimulate rural economic development [46,47]. These entities, benefiting from economies of scale, have been able to establish effective linkages between the different sectors of the industrial chain, leading to the emergence of new business models that facilitate three-industry integration in rural China. Through their organizational, managerial, and technological advantages, business entities such as leading enterprises, farmers’ professional cooperatives, and family farms have been able to facilitate smallholder farmers, streamline the agricultural supply chain, implement intensive production methods, and enhance overall agricultural production efficiency [11]. This, in turn, promotes rural three-industry integration.

Economies of scale play an important role in rural three-industry integration as land becomes concentrated. Specifically, scale economy can accelerate the integration process by improving agricultural production efficiency, facilitating the flow of production factors, stimulating the creation of new businesses, and encouraging labor mobility. From the factor flow level, economies of scale attract capital, knowledge, management expertise, and other resources, leading to the influx of credit funds, information technology, and business enterprises into rural areas. This integration greatly boosts agricultural production efficiency and aligns with the needs of the secondary and tertiary industries. Furthermore, economies of scale enable agricultural entities to reduce production costs and risks, invest in new business models such as facility agriculture, leisure agriculture, and ecological agriculture, and transform traditional agricultural practices. This shift paves the way for horizontal industry integration and diversification. Additionally, economies of scale contribute to improved agricultural production efficiency, reducing the demand for farming labors, enabling farmers to pursue off-farm work in related industries. These experienced laborers can then be employed by agricultural business entities, further enhancing productivity and efficiency.

Moreover, as farmers’ decisions regarding land transfer affect the operational costs of acquiring entities, the market mechanism that governs land transfer serves as a catalyst for three-industry integration in rural areas. Based on the market prices, land naturally flows to the entities with higher production efficiency, leading to the development of rural enterprises and industrial parks with unique local characteristics [48]. This dynamic motivates business entities to diversify their agricultural activities, offer a range of services and products, and respond to market demand [49]. Considering these observations, we propose the following hypothesis:

Hypothesis 2 (H2).

Fiscal support for agriculture could facilitate rural three-industry integration by promoting the transfer of rural land.

2.3. Promoting Rural Three-Industry Integration by Guiding the Allocation of Financial Resources

In addition to land, the availability of capital and other factors in rural areas is also inadequate [38], posing a major constraint to three-industry integration in rural areas [15]. In recent years, there has been a growing recognition of the role of agricultural finance as a catalyst for economic development [7]. Rural finance has seen accelerated development, supported by government policies that have led to the establishment of new rural financial institutions, such as village banks, loan companies, and mutual cooperatives. These initiatives have had a notable and positive impact on encouraging farmer participation in new agricultural organizations and promoting rural residents’ engagement in rural industrial integration. However, rural areas continue to face common challenges such as limited access to loans, high credit costs, and sluggish financing for agricultural operating entities. These challenges stem from deficiencies in the rural financial service system, unsound synergistic mechanisms, inadequate rural financial resources, sustainability issues, and the insufficient and imbalanced provision of rural financial services [23]. Therefore, insufficient fiscal support has become the main shortcoming in rural three-industry integration, greatly impeding its holistic development [50].

To address the deficiencies in the financial market, the government has leveraged fiscal support for agriculture as a strategic tool to guide the flow of capital into rural areas. Theoretically, rural areas need a large amount of capital investment for the development of secondary and tertiary industries. Relying solely on the agricultural surplus is insufficient to meet this demand, necessitating the bridging of the capital gap through financial resources under the market mechanism to support the development of secondary and tertiary industries in rural areas. However, according to the financial development theory, capital, driven by profit motives, often faces challenges in directly flowing into rural areas to meet their specific needs. Thus, the government can play a pivotal role in directing financial resources to rural areas through public funding mechanisms and value chain finance [51,52]. By enhancing fiscal support in rural areas, industrial policies can be effectively aligned with credit funds, enabling the limited credit resources within the rural financial system to flow into rural industries [53]. The degree of financial integration affects the speed of structural transformation [54]. This strategic approach not only facilitates the integrated development of rural industries through the optimization of savings, investment, and resource allocation [55], but also fosters the rapid growth of new agricultural business enterprises. These entities, which have emerged in recent years [56], are transforming traditional smallholder production methods and improving agricultural production efficiency. Additionally, the inflow of financial capital into rural areas also enables new business entities to expand the industrial chain and diversify into new agribusinesses such as facility agriculture, leisure agriculture, ecological agriculture, digital agriculture, and rural tourism, thereby achieving both vertical and horizontal industrial integration.

In conclusion, government fiscal support plays a crucial role in improving the development of rural three-industry integration by guiding the allocation of financial resources. Based on the aforementioned points, the following hypothesis is proposed:

Hypothesis 3 (H3).

Fiscal support for agriculture could facilitate rural three-industry integration by strategically guiding the allocation of financial resources.

3. Materials and Methods

3.1. Benchmark Regression Model

According to the above mechanism analysis, this study first determined whether fiscal support for agriculture has a positive effect on three-industry integration in rural China. Since three-industry integration was measured by an entropy method, with a value between 0 and 1, the dependent variable is a restricted variable. Therefore, to eliminate the potential bias caused by the ordinary least square (OLS) method, a Tobit regression model is applied as below:

$${RID}_{i,t}={\alpha }_0+{\alpha }_1{fina}_{i,t}+{\alpha }_2{X}_{i,t}+{\mu }_i+{\epsilon }_{i,t}$$

(1)

where i denotes province; t denotes year; $RI{D}_{i,t}$ denotes the level of integrated development of the primary, secondary, and tertiary industries in rural areas; and $fin{a}_{\mathrm{i},t}$ denotes the government’s fiscal support for agriculture. Meanwhile, $X_{i,t}$ denotes the control variables; ${\alpha }_0$ represents a constant term; ${\mu }_i$ denotes the fixed effect in province I; and ${\epsilon }_{i,t}$ is a random perturbation term.

3.2. Mechanism Testing Model

According to the study of Ref. [48], the mechanism variables of the study have positive effects on the promotion of rural three-industry integration; thereby, we could only examine the effects of fiscal support for agriculture on the mechanism variables, which can be expressed as follows:

$${INF}_{i,t}={\beta }_0+{\beta }_1{fina}_{i,t}+{\beta }_2{U}_{i,t}+{\mu }_i+{\epsilon }_{i,t}$$

(2)

$${LAF}_{i,t}={\beta }_0+{\beta }_1{fina}_{i,t}+{\beta }_2{V}_{i,t}+{\mu }_i+{\epsilon }_{i,t}$$

(3)

$${FIN}_{i,t}={\beta }_0+{\beta }_1{fina}_{i,t}+{\beta }_2{W}_{i,t}+{\mu }_i+{\epsilon }_{i,t}$$

(4)

The dependent variable $IN{F}_{i,t}$ in Equation (2) represents the level of rural infrastructure development of province i in period t; the dependent variable $LA{F}_{i,t}$ of Equation (3) represents the land transfer rate of province i in period t. The dependent variable $FI{N}_{i,t}$ in Equation (4) represents the level of rural financial development of province i in period t. $U_{i,t}$, $V_{i,t}$, and $W_{i,t}$ represent the control variables in Equations (2)–(4), respectively, which include the level of economic development (DEV), the level of urbanization (URL), the level of rural human capital (RHC), the large-scale production in agriculture (LAM), the level of entrepreneurial activity in rural areas (ENT), and the degree of the advanced structure of the industry (INA).

3.3. Definitions of Variables

3.3.1. Dependent Variables

The dependent variable in this study is the level of integrated development of rural primary, secondary, and tertiary industries, since the measurement of the dependent variable cannot be measured using only a single indicator due to the multitude of factors influencing the level and impact of integrated development within the agricultural industry. Following the methods of the existing studies [35,57], in order to evaluate the horizontal, vertical, and urban–rural integration, as well as new forms of business, representing rural industrial chain extension, multifunctional development, intensive allocation of production factors, and social effects of three-industry integration in total, we have selected some primary indicators to establish an index system across four key dimensions: (1) Vertical industrial integration is estimated by three secondary indicators, such as the per capita gross output value of the primary industry, the proportion of the agricultural product processing industry, and the scale of farmers’ specialized cooperatives, mainly representing the output value, and the industrial organization of agriculture and the agriculture processing industry, respectively. (2) Multifunctional industrial development and horizontal industrial integration are gauged by factors like the proportion of leisure agriculture and the level of facility agriculture, representing the output values of two new business forms. (3) The external environment support of industrial integration is determined by the ratio of the output of agricultural-related service industries to the output of primary industry, representing the output value of the service industry related to agriculture. (4) The social effects of three-industry integration is measured by the ratio of per capita consumer expenditures between urban and rural residents and the ratio of per capita income between urban and rural residents, representing the level of urban–rural gaps in residents’ income and consumption. Therefore, correlations and differentiations between different indicators are not high because they belong to the output of three-industry integration, including new forms of industry, consumption, income, organizations, and other fields which cannot easily affect each other. Therefore, different indicators in the evaluation convey different information, with little similarity.

The entropy method is used to measure the weights of the secondary indicators and derive a comprehensive level of integrated development of rural primary, secondary, and tertiary industries across all provinces of China (except Tibet, Hongkong, Macau, and Taiwan) from 2008 to 2020. This methodology allows for the calculation of the comprehensive level of integrated development over the specified timeframe. The indicators used in this study, along with their respective measurements, are shown in

Table 1. Indicators for measuring three-industry integration in rural China.

Primary Indicator	Secondary Indicator	Measurement	Unit	Content
Expansion of rural industry chain	Gross output of primary sector per capita	Gross output of primary sector/total rural population	CNY per person	Representing agricultural operations
	Share of agriculture processing industry	Revenue from main business of agri-processing industry/gross agricultural output	%	Reflecting the degree of integration between agriculture and the secondary sector
	Scale of professional farmers’ cooperatives	Number of farmers’ professional cooperatives per 10,000 people in rural areas	number	Reflecting the situation of agricultural scale operation
Multi-functionality in agriculture	Share of agritourism	Annual operating income from agritourism/gross output value of the primary industry	%	Reflecting the degree of integration and development of agriculture and the tertiary sector
	Protected agriculture	Total area of protected agriculture/total area of arable land	%	Reflecting the level of modernization of agricultural operations and upgrading of the agricultural industry
Integration of agricultural service industry	Share of agricultural-related service industries	Gross value of agricultural, forestry, animal husbandry, and fishery service industries/gross output of primary sector	%	Reflecting the integration of agriculture and the service sector
Urban–rural integration	Ratio of per capita consumption expenditure of urban and rural residents	Per capita consumption of urban residents/per capita consumption of rural residents	-	Reflecting the progression of urban–rural integration
	Ratio of per capita income of urban and rural residents	Per capita disposable income of urban residents/per capita disposable income of rural residents	-	Reflecting the progression of urban–rural integration

.

3.3.2. Independent Variables

In this study, the core explanatory variable is the government’s fiscal support for the agricultural sector in each province. Due to the varying levels of agricultural development across provinces, the intensity of fiscal support for agriculture is expressed by the ratio of fiscal investment in agriculture to the total output value of the primary sector (including agriculture, forestry, animal husbandry, and fisheries).

According to the results of previous studies [13,15,58,59], the integration level of the three rural industries is not only affected by government fiscal support for agriculture, but also by various control variables, including: (1) the level of economic development (DEV), measured by the logarithm of per capita GDP. (2) Urbanization level (URL), which affects rural industrial integration through factors such as rural population migration and the reduction of agricultural arable land. This variable is measured by the proportion of urban population to the total population in each province. (3) Rural human capital (RHC), determined by the number of years of education per capita in rural areas. This method follows the guidelines provided by the National Bureau of Statistics. (4) Rural entrepreneurial activity (ENT), reflecting the market economy and entrepreneurial vibrancy in rural areas. It is assessed by the ratio of rural private entrepreneurs and self-employed individuals to the total rural workforce in each province. (5) Degree of industrial structure advancement (INA), represented by the ratio of value added by secondary and tertiary industries to the regional value added in each province.

3.3.3. Mechanism Variables

(1) Rural infrastructure development (INF), measured by five proxy indicators using the entropy method (see

Table 2. Measurement of rural infrastructure development.

Indicators	Description	Unit	Content
Agricultural land and water conservancy	Effective irrigated area	Kilo-hectare	Actual irrigation effects produced by hydraulic works and equipment on arable land
Energy supply	Rural electricity consumption	Million kilowatt hours	The reality of rural energy supply
Transportation	Mileage of substandard modes	Kilometers	Accessibility of rural areas
Information network	Average number of mobile phones per 100 rural households	One phone	Rural residents’ ability to access information
Hygiene	Number of village clinics	One health room	Rural health security situation

). The included indicators are most relevant to three-industry integration, which can directly influence agricultural production, sales, and industrial development.

(2) Rural land transfer rate (KAF), calculated as the ratio of transferred family-contracted arable land to the total operated arable land. The data were obtained from the Annual Statistical Report on China’s Rural Policy and Reform (2020).

(3) Level of rural financial development (FIN), characterized by the ratio of agriculture-related loan balances to the total output value of agriculture, forestry, animal husbandry, and fisheries.

3.4. Data Sources and Descriptive Statistics

The data used in this study come from 30 Chinese provinces (excluding Tibet, Hong Kong, Macau, and Taiwan) from 2008 to 2020. The data sources include mainly the China Statistical Yearbook, the China Rural Financial Services Report, the China Leisure Agriculture Statistical Yearbook, the China Population and Employment Statistical Yearbook, the China Rural Policy and Reform Statistical Yearbook, the China Rural Statistical Yearbook, the National Bureau of Statistics, the National Greenhouse Data System, and statistical yearbooks of each province, and the default values are obtained by linear interpolation. The descriptive statistics for each variable are shown in

Table 3. Descriptive statistics of variables.

Variable	Definition	Mean	Std. Dev.	Obs.	Min	Max
RID	level of development of three-industry integration	0.14	0.11	390	0.01	0.55
Fina	fiscal agricultural expenditure	7.84	0.78	390	5.85	9.91
INF	infrastructure development	0.24	0.13	390	0.03	0.56
LAF	land transfer rate	0.27	0.17	390	0.02	0.96
FIN	level of rural financial development	2.75	2.10	390	0.28	13.4
DEV	level of economic development	10.64	0.53	390	9.18	12.0
URL	level of urbanization	57.03	13.1	390	29.1	89.6
RHC	rural human capital	7.72	0.63	390	5.88	9.91
ENT	rural entrepreneurial activity	0.33	0.56	390	0.03	4.75
INA	industrial structure upgrading	0.90	0.05	390	0.71	0.99

.

4. Results and Discussion

4.1. Benchmark Regression Results

Table 4. Results of benchmark regression.

	(1)	(2)	(3)	(4)
fina	0.171 *** (10.07)	0.162 *** (8.28)	0.0576 *** (3.45)	0.0392 ** (2.09)
DEV			0.105 ***	0.108 ***
			(8.82)	(7.07)
URL			0.00283 ***	0.00366 ***
			(5.52)	(4.08)
RHC			−0.00477	−0.00339
			(−0.76)	(−0.33)
ENT			−0.0283 ***	0.00300
			(−3.25)	(0.30)
INA			−0.0417	−0.379 ***
			(−0.55)	(−2.91)
_cons	0.117 ***	0.119 ***	−1.053 ***	−0.849 ***
	(19.17)	(8.97)	(−9.45)	(−5.70)
σ		0.0661 *** (7.22)		0.0490 *** (7.14)
μ		0.0640 *** (26.83)		0.0364 *** (26.74)
$\rho$		0.5163		0.6438
LR		201.97		266.15
N	390	390	390	390

Note: *** and ** denote significance levels of 1% and 5%, respectively; t-statistics are shown in parentheses.

presents the benchmark regression results, where column (1) shows the results of the mixed Tobit model, without control variables; column (2) shows the results of the random-effects Tobit model, without control variables; column (3) presents the results of the mixed Tobit model, with control variables; and column (4) shows the results of the random-effects Tobit model, with control variables. According to Table 4, the individual and random errors of the model are small, the variance ratio $\rho$ is above 0.5, the proportion of variance accounted for by the individual effect is large, and the value of the likelihood ratio (LR) is large, strongly rejecting the original hypothesis of a zero individual effect. These results suggest that using the random-effects Tobit model is a good fit [60,61].

Therefore, under the role of fiscal expenditure for agricultural support, the integration of modern information, as well as biological and other high technologies into the traditional agricultural sector, have gradually affected agricultural production, distribution, and sale processes. This has led to enhanced production efficiency, blurred boundaries between high-tech industries and traditional agriculture, and the emergence of a new industry paradigm, such as information agriculture and bio-agriculture, leading both horizontal and vertical rural three-industry integration. Moreover, industries such as agritourism and rural complex ecosystems could also be stimulated through development investments, subsidies, and fiscal support, further promoting horizontal rural three-industry integration.

Our findings regarding the positive effects of fiscal support for agriculture are in line with the findings in other countries. Specifically, considering the rural development in Poland, the government used the common agricultural policy (CAP) with direct payments to realize the goal of the modernization of farms. Therefore, rural areas achieved an increase in non-farming business activities and units operating in rural areas, raising the competitiveness of agriculture and the income of the employed population [62]. At the same time, the Swedish government also lunched the Pillar 2 of CAP program to facilitate its sustainable rural development through identifying and supporting new opportunities for farm diversification, leading to multifunctional agriculture and contributing to sustainable economic, social, and environmental development in rural Swedish areas [63].

4.2. Robustness Check

4.2.1. Endogenous Analysis

The benchmark regression estimation may possess potential endogeneity issues due to two-way causality, omitted variables, or other factors, potentially biasing estimation results. For instance, it is possible that as the level of rural three-industry integration increases, the flow of financial resources to rural areas may also increase, subsequently increasing the government’s revenue in rural areas and augmenting fiscal support for agriculture. To address this issue, the two-stage least square (2SLS) and generalized method of moments (GMM) methods are applied to mitigate the potential endogeneity issue caused by reverse causality [64]. The results are presented in

Table 5. Endogeneity test results.

	(5)	(6)
fina	0.0648 *** (2.74)	0.0209 * (2.42)
_cons	−0.695 *** (−4.08)	−0.714 *** (−4.31)
LM Test	244.968 ***
F	930.528
Hansen Test (p)		0.261
AR(1)		−2.31 ** (p = 0.033)
AR(2)		0.83 (p = 0.408)
N	360	360

Note: ***, **, and * denote significance levels of 1%, 5%, and 10%, respectively; t-statistics are shown in parentheses.

, with column (5) showing the 2SLS method results and column (6) displaying the GMM method results. The findings in Table 5 affirm that fiscal support for agriculture continues to have a significant positive effect on rural three-industry integration, further verifying the main hypothesis.

4.2.2. Robustness Tests

The robustness testing is conducted using three methods: the tail reduction method, the replacement variable method, and the exclusion of policy shocks. For the tail reduction method, the upper and lower 1% tails of the observations of the core independent variable (i.e., the level of fiscal support for agriculture) and the dependent variable (i.e., the level of development of rural three-industry integration) are trimmed to eliminate outliner interference. Regarding the replacement core independent variable method, the indicator (cfina) is obtained by dividing the financial expenditures for agriculture, forestry, and water affairs by the rural population, then applying the logarithm. Subsequently, regression is re-executed, with the new variable replacing fiscal support for agriculture. Finally, we also consider potential policy impacts, such as China’s pilot policy on rural industrial integration development in 2015, which may affect the regression results. Thus, we only consider the samples from 2008–2014 in the model for analysis to mitigate policy shock effects. The results of the robustness tests are shown in

Table 6. Robustness test results.

	(7)	(8)	(9)
	Replacement of Core Variable	Tail Reduction Method	Excluding Policy Shocks
fina		0.0428 ** (2.20)	0.121 *** (2.82)
cfina	0.0174 * (1.67)
cons	−0.820 *** (−5.28)	−0.814 *** (−5.58)	−0.688 *** (−4.76)
Control variable	YES	YES	YES
${\sigma }_{\mu }$	0.0491 ***	0.0486 ***	0.0362 ***
	(7.16)	(7.12)	(6.77)
${\sigma }_e$	0.0365 *** (26.75)	0.0354 *** (26.73)	0.0264 *** (18.78)
ρ	0.6439	0.6531	0.6531
LR	265.01	273.02	127.98
N	390	390	210

Note: ***, **, and * denote significance at the 1%, 5%, and 10% level, respectively; t-statistics are shown in parentheses.

, indicating that the government fiscal support for agriculture continues to positively influence rural three-industry integration, consistent with the benchmark regression results.

4.3. Heterogeneity Test

4.3.1. Heterogeneity of Geographic Regions

To examine the heterogeneity of fiscal support for agriculture regarding rural three-industry integration, the relevant data from 30 provinces in China from 2008 to 2020 are grouped according to the location of sample provinces in Eastern, Central, or Western China. The results of heterogeneity of the geographic locations are shown in Table 6. It can be seen that the relationship between fiscal support for agricultural inputs and rural three-industry integration shows obvious heterogeneity characteristics. Specifically, fiscal support for agriculture has a significant positive effect on rural three-industry integration in Eastern (statistical significance at 1% level) and Central (statistical significance at 10% level) China, while the effect of financial expenditures for agriculture is not significant in Western China. One possible reason for the regional differences is that there are large differences in the economic development of rural areas in these regions. The digital economy and financial level in the rural areas of Eastern China are developing at a faster pace than in the other parts of China, which could thereby effectively promote rural three-industry integration in the regions relative to Central and Western China [65]. For the Central Region of China, it has seven major grain producing areas, with eight provinces in total. The proportion of major grain producing areas in the Central Region is higher than proportions in other areas in China, leading to a big difference in results. Due to the food crops’ objective characteristics of high risks and low returns, fiscal support for agriculture has a great influence on the production of primary industry and rural three-industry integration, indicating a high influence coefficient in the Central Region. However, compared to cash crops, food crops have a weaker impact on the integration of secondary and tertiary industry, with inadequate ornamental and economic value, lowering the influence coefficient. Due to these reasons, the fiscal support for agriculture mainly promotes the development of primary industry and affects the rural secondary and tertiary industry to a limited extent because of the boundness of the food crop, resulting in the influence coefficient expressing high, and significance level expressing low, levels. Therefore, it can only have a restrictive effect on promoting rural three-industry integration. In the Western Region, due to their relatively underdeveloped status characterized by lagging agricultural production levels and a lack of capital and technical resources, the extension and expansion of the agricultural value chain are insufficient. The backward technical level and the industrial foundations in rural areas hinder three-industry integration in Western China. Thus, the fiscal support for agriculture there mainly consists of subsidy-oriented expenditures, aimed at assisting China’s poverty alleviation efforts through expenditure reallocations.

4.3.2. Heterogeneity of Agricultural Development

Based on the level of agricultural development, the 30 Chinese provinces are divided into 15 agricultural provinces and 15 non-major agricultural provinces for the sub-sample regression analysis. The results are presented in

Table 7. Heterogeneity test results.

	(10)	(11)	(12)	(13)	(14)
	Eastern China a	Central China b	Western China c	Non-Major Agricultural Provinces	Major Agricultural Provinces d
fina	0.0660 *** (4.04)	0.125 * (1.74)	0.0674 (1.06)	0.0531 ** (2.07)	0.2532 *** (4.45)
_cons	0.577 (1.59)	−0.348 ** (−2.99)	−0.604 ** (−2.46)	−0.1984 (−0.36)	−0.1900 ** (−2.16)
control variable	YES	YES	YES	YES	YES
${\sigma }_{\mu }$	0.115 ***	0.0489 ***	0.0379 ***	0.100 ***	0.0329 ***
	(4.22)	(3.84)	(4.00)	(4.85)	(4.92)
${\sigma }_e$	0.0413 *** (16.11)	0.0174 *** (13.82)	0.0374 *** (16.12)	0.0452 *** (18.79)	0.0214 *** (18.85)
$\rho$	0.8856	0.8872	0.5066	0.8307	0.7035
LR	136.32	102.57	46.38	162.64	128.26
N	143	104	143	195	195

Note: ***, **, and * denote significance levels of 1%, 5%, and 10%, respectively; t-statistics are shown in parentheses. ^a According to the regional data provided by the National Bureau of Statistics website, the Eastern Region includes Beijing, Tianjin, Hebei, Liaoning, Shanghai, Jiangsu, Zhejiang, Fujian, Shandong, Guangdong, and Hainan. ^b The Central Region includes Shanxi, Jilin, Heilongjiang, Anhui, Jiangxi, Henan, Hubei, and Hunan. ^c The Western region includes Inner Mongolia, Guangxi, Chongqing, Sichuan, Guizhou, Yunnan, Shaanxi, Gansu, Qinghai, Ningxia, and Xinjiang. ^d According to the classification by the study in Ref. [66], the major agricultural provinces include Hebei, Jilin, Heilongjiang, Anhui, Jiangxi, Henan, Hubei, Hunan, Guangxi, Hainan, Sichuan, Guizhou, Yunnan, Gansu, and Xinjiang.

. Our results show that the government’s fiscal support for agriculture in major agricultural provinces have significantly larger effects on rural three-industry integration here than in non-major agricultural provinces. Three-industry integration in rural areas relies on agriculture as the pillar industry, with subsequent extension and expansion of the industrial chain. Major agricultural provinces have an inherent advantage in promoting the integrated development of rural industries. Conversely, provinces where agriculture contributes a high proportion of output, but where the development of secondary and tertiary industries lags behinds, exhibit an obvious “latecomer’s advantage” in promoting the integrated development of rural industries. Under the guidance and support of fiscal support for agriculture, these major agricultural provinces find it easier to reap the results of providing public services, eliminating information asymmetry, and supporting and guiding industries. The interconnection of the pre-production, production, and post-production stages of agricultural production chains, as well as the development of new forms of agriculture, such as facility agriculture and leisure agriculture, become more feasible. Consequently, they can rapidly enhance the level of rural three-industry integration.

In contrast, non-major agricultural provinces often face significant challenges in advancing rural three-industry integration due to their weak agricultural foundations. In some cases, the natural environment in these provinces may even be relatively harsh, further complicating efforts to promote rural three-industry integration through the government’s fiscal support for agriculture.

4.4. Results of Mechanism Analysis

The above analysis verifies that the fiscal support for agriculture has increased the level of rural three-industry integration. We further examine the hypotheses that the positive effects of fiscal support for agriculture on the development of rural three-industry integration can be achieved by promoting the construction of rural infrastructure and the transfer of agricultural land, and by guiding the allocation of financial resources.

4.4.1. Results of the Effect of Fiscal Support for Agriculture on Rural Infrastructure Development

The results of the effect of fiscal support for agriculture on rural infrastructure development are presented in column (15) of

Table 8. Mechanism testing results.

	(15)	(16)	(17)
	INF	LAF	FIN
fina	0.0422 *** (3.96)	0.150 *** (6.65)	2.912 *** (8.41)
cons	0.315 *** (2.66)	−1.963 *** (−7.90)	−6.158 ** (−2.15)
Control variable	YES	YES	YES
Individual fixed effect	YES	YES	YES
Time fixed effect	No	No	No
N	390	390	390

Note: *** and ** denote significance levels of 1% and 5%, respectively; t-statistics are shown in parentheses.

. It can be seen that the effect of government fiscal support for agriculture on rural infrastructure construction is significantly positive, which indicates that fiscal support for agriculture can promote the development of rural three-industry integration through the promotion of rural infrastructure construction. Specifically, the transmission mechanism can be achieved through the following ways: (1) the government’s fiscal support for agriculture could promote the construction of rural infrastructure, which improves the scope of infrastructure services enjoyed by the business entities. (2) The improved level of rural infrastructure construction could also promote the intermingling of technology, business, and products, facilitating the flow of production factors. (3) Rural infrastructure construction is conducive to the construction of a unified platform of industrial facilities, which gives business entities a competitive advantage in integrating various input factors, thereby expanding markets and coordinating business entities. The results are similar to those obtained for the process of rural economic development in North Carolina. The state invested heavily in its secondary roads and highways, increasing the accessibility of rural communities and making it easier for entrepreneurs to operate a factory in rural areas [67]. Therefore, factories began sprouting across rural North Carolina, proving the importance of rural infrastructure in promoting rural industrial development.

4.4.2. Results of the Effect of Fiscal Support for Agriculture on Land Transfer

The results of the effect of fiscal support for agriculture on land transfer are presented in column (16) of Table 8. Our results indicate that the effect of fiscal support to agriculture on the land transfer rate is significantly positive. Therefore, fiscal support to agriculture can promote the development of rural three-industry integration through rural land transfer; the specific transmission mechanism is as follows: (1) Agricultural operating entities achieve intensive, large-scale production through an active land transfer market, investing surplus capital in new formats such, as facility agriculture, while expanding scale. This shift promotes a broader and deeper division of labor, thus broadening the industrial chain. (2) The economies of scale free up the labor force from agriculture, facilitating the transfer of the rural labor force to non-agricultural sectors and providing ample human capital for the extension and expansion of the industrial chain. (3) The land transfer market affects the operating costs of the transferring entities, prompting them to combine agriculture with other industries and provide diversified products to meet market demand. Through these pathways, fiscal expenditure on agriculture could solve the contradiction between land supply and demand in rural area, rejuvenate the land transfer market, promote a better allocation of rural land resources to the hands of efficient business entities, and thereby promote the development of rural three-industry integration through economies of scale. Considering objective and historical conditions for Polish rural development for reference, land consolidation provides the main instruments and a stimulus to ensure the multifunctional development of a given rural area and increase attractiveness of the areas in the economic, social, ecological, landscape, and spatial aspects [62].

4.4.3. Results of the Effects of Fiscal Support for Agriculture on the Allocation of Financial Resources

The results of the effects of fiscal support for agriculture on the allocation of financial resources are shown in in column (17) of Table 8. It can be seen that fiscal support for agriculture could significantly enhance the allocation of financial resources. The specific acting mechanism are as follows: (1) Fiscal support for agriculture could guide financial resources flowing to rural areas, fill the capital gap, and solve the problem of lack of funds in rural areas. (2) Diverting financial resources to rural areas could change the traditional smallholder production mode, improve agricultural production efficiency, and realize the economies of scale in rural areas, which is conducive to the rapid development and expansion of new agricultural business entities, thus promoting three-industry integration in rural areas. Our results also corroborate the findings of Ref. [23] that synergistic cooperation regarding fiscal support for agriculture, agricultural credit, and agricultural insurance could promote rural three-industry integration. Moreover, in Thailand, the government instituted the “Million Baht Village Fund” program, resulting in increased total short-term credit, consumption, and agricultural investment. It provides an Asian case for reference to promote rural industrial development and integration [68].

5. Conclusions, Policy Recommendations, and Future Research Directions

In this study, we accessed the panel data of 30 provinces in China from 2008 to 2020 and examined the effects and mechanism of the fiscal support for agriculture on three-industry integration in rural China. We found that: (1) Under the guidance of industrial policy, the government can facilitate the integration of primary, secondary, and tertiary industries in rural areas through financial support to agriculture. (2) Fiscal support for agriculture has a significant positive impact on rural infrastructure construction, which is conducive to the circulation of technology, labor, and products, as well as the construction of a unified market across the country, as proposed by the Chinese government. Moreover, fiscal support for agriculture could strengthen the capacities of rural business entities to integrate various production factors, facilitate the adoption of advanced technology by the operating entities, and coordinate all parties, thus effectively promoting rural three-industry integration. (3) Fiscal support for agriculture could revitalize land transfer markets, realize the economies of scale and the intensive production mode of agribusiness entities, promote new business models, such as facility agriculture, and promote the transfer of the agricultural labor force to non-agricultural sectors, thereby extending and expanding the industrial chain in the rural areas. (4) Fiscal support for agriculture could guide the allocation of financial resources, provide financial support for business entities to expand their production scale, promote the rapid development and expansion of new agribusiness entities in rural areas, and eventually realize the development of rural three-industry integration.

Based on the major findings of this study, the following policy recommendations are proposed:

First, the government should focus on improving the economic infrastructure related to rural and industrial development, providing “seed capital” for rural three-industry integration, and create a favorable external environment, strengthening the construction of traditional rural infrastructure, such as rural roads, reducing transaction costs for agricultural products, and providing good conditions for the circulation of production factors and industrial interaction between urban and rural areas. Additionally, eligible rural areas can improve new rural infrastructure, such as information technology, to promote the direct connection between producers and consumers, establish “Internet+” enterprises, and prepare for deep three-industry integration in the future.

Second, the government could implement standardized management of the agricultural land transfer market, provide relevant services to ensure the smooth flow of transfer information, reduce the transaction costs for land transfer-in and -out, and resolve disputes over interests that occur during the land transfer process. Promoting the scale and specialization of land transfer on the basis of regulating the land transfer market could also attract new types of operating entities and leading enterprises entering rural areas, driving agricultural production towards technological, standardized, and diversified development.

Third, the Chinese government should strengthen the guiding role of fiscal policies in regards to agricultural credit funds, strengthening the coordination between fiscal and credit policies. On the one hand, local governments should expedite the implementation of policies rewarding financial institutions for increasing agricultural loans, use special fiscal funds to provide financial interest subsidies and tax incentives for financial institutions involved in agricultural loans, enhance the enthusiasm of rural financial institutions to support agriculture, and reduce the financing cost of the main bodies of rural industrial integration development. On the other hand, fiscal support for agriculture should focus on helping rural areas tap their advantageous resources, attract financial resources to flow to rural areas through comparative advantages, and break the factor constraints caused by the siphoning effect in the agricultural and rural sectors.

There are several limitations in our study that merit attention. Due to constraints in time and budget, we did not account for the societal and environmental impacts of fiscal support for agriculture in our analysis. Consequently, indicators related to education and culture were not included in the assessment of rural infrastructure development. Incorporating these indicators in future research could facilitate a more thorough evaluation of the effects of fiscal support for agriculture on society and the environment.

Moreover, given the significant issue of land abandonment in China, it would be interesting to explore how fiscal support for agriculture influences the land trading market to support rural industrial development. Such investigations could yield policy recommendations to enhance rural land utilization in China. By addressing these aspects, we can arrive at a more comprehensive and robust conclusion, offering more practical policy suggestions for future research endeavors.