Property rights reform, grassroots democracy and investment incentive

Since 2006, China began a property reform on rural forest land, which is called "the second land reform" after the implementation of China's rural household contract responsibility system. Using a unique household survey data, we analyze the impact of grassroots democratic decision-making on investment incentives of the property right reform on forest land. We find that the property rights reform promotes farmers to raise about 19% of labor input on the forest land only in villages with a democratic decision-making process, while the property rights reform without a democratic decision-making process does not generate any significant incentive for investment. We also explore the channel of that impact and find that the democratic decision-making process can improve investment by enhancing villagers' confidence in their property rights and by empowering them through their involvement in the decision-making process to know their benefits.