The Costs of Political Manipulation of Factor Markets in China

61 Pages Posted: 12 Sep 2020

See all articles by J. Vernon Henderson

J. Vernon Henderson

London School of Economics & Political Science (LSE); National Bureau of Economic Research (NBER)

Dongling Su

Boston University, College of Arts and Sciences, Department of Economics, Students

Qinghua Zhang

Peking University - Guanghua School of Management

Siqi Zheng

Samuel Talk Lee Professor of Urban and Real Estate Sustainability, Faculty Director of MIT Center for Real Estate

Multiple version iconThere are 2 versions of this paper

Date Written: September 2020

Abstract

Despite China's economic achievements, factor market reforms have been slow. We analyze local political manipulation of land markets, along with capital market favoritism of certain cities, using a structural general equilibrium model. We estimate city-by-city local leaders' preferences over GDP enhancement versus residents' welfare. Equalizing capital prices across cities would increase worker welfare and returns to capital by 2.6% and 11%, respectively. Further, forcing local leader to focus just on enhancing welfare of residents would increase welfare by another 5.3%. Reforms would significantly reduce the population of favored cities like Tianjin and Beijing, while raising that of cities like Shenzhen.

Suggested Citation

Henderson, J. Vernon and Su, Dongling and Zhang, Qinghua and Zheng, Siqi, The Costs of Political Manipulation of Factor Markets in China (September 2020). CEPR Discussion Paper No. DP15247, Available at SSRN: https://ssrn.com/abstract=3688201

J. Vernon Henderson (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Dongling Su

Boston University, College of Arts and Sciences, Department of Economics, Students ( email )

270 Bay State Road
Boston, MA
United States

Qinghua Zhang

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Siqi Zheng

Samuel Talk Lee Professor of Urban and Real Estate Sustainability, Faculty Director of MIT Center for Real Estate ( email )

Building 9-323
Cambridge, MA 02139
United States

HOME PAGE: http://https://siqizheng.mit.edu/

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