In the rest of the paper, Section 2 describes the Grain for Green program and the data used in
this study. Section 3 develops the household model that illustrates how a PES may affect a household’s
decisions about how to allocate land and labor across different activities when faced with a liquidity
constraint. Section 4 gives an overview of the study’s empirical approach and discusses the
identification strategy. Section 5 is devoted to estimation of the effect of China’s Grain for Green
program on the off-farm-labor participation of rural households, and Section 6 provides estimates of the
effects of the program for various groups, dividing the sample according to levels of physical and human
capital endowment. Section 7 concludes and summarizes the results.
II. The Grain for Green Program and Study Data
China’s Grain for Green Program
Starting in 1999 as a pilot program, the Grain for Green program was implemented by China’s
government as a crop land set-aside program to increase forest cover and prevent soil erosion on
cultivated slopes.6 By 2010, the State Forest Administration plans to convert 15 million hectares of crop
land (approximately 10 percent of all of China’s cultivated area) (State Forestry Administration, 2003).7
Since the main objective of China’s program is to restore the nation’s forests and grasslands to prevent
soil erosion, program designers have set slope as one of the main criteria by which plots are selected for
inclusion in the Grain for Green program.
According to the program’s rules, each participating farmer receives three types of
compensation: in-kind grain, cash and free seedlings. In-kind grain and cash compensation are given out
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