Agricultural Subsidies and Productivity: Unpacking the Role of Land Transfer Markets in China

ABSTRACT Agricultural subsidies are a key policy tool for improving farm productivity, yet their effectiveness depends on how they interact with land market conditions and farmers’ behavioral responses. This study examines the pathways through which coupled and decoupled subsidies influence farm‐level production efficiency in China, focusing on farmland market rental distortions and farmers’ perceived tenure security. Using nationally representative household‐level survey data and a multilevel chain mediation model, the results show that both types of subsidies are positively associated with farm‐level production efficiency. However, only coupled subsidies exhibit significant indirect effects on farm‐level production efficiency by reducing farmland market rental distortions and enhancing farmers’ perceived tenure security. In contrast, decoupled subsidies display limited transmission through these intermediate mechanisms. Further analysis reveals that the indirect effects of coupled subsidies are more pronounced in major grain‐producing regions, where farmland market structures and subsidy targeting are better aligned. These findings suggest that farmland market conditions play a critical role in translating subsidies into productivity gains and that improving subsidy design to better reflect local farmland market rental distortions and tenure security can enhance their overall effectiveness.