Crop Allocation and Increasing Returns to Fertilizer Use in China

Abstract

This study sheds light on the effects of crop allocation on economic returns to chemical fertilizer in Chinese agriculture and attempts to explain the increasing trend of aggregate fertilizer use from a different angle even though the government tried to limit the application. We show in theory and through simulation and empirical analyses that while the marginal product of fertilizer is declining at the intensive margin (for a specific crop), this may be offset by an increasing marginal product of fertilizer at the extensive margin (due to shifts in the structure of crops produced).