Place-based Land Policy and Spatial Misallocation: Theory and Evidence from China

71 Pages Posted: 18 May 2021 Last revised: 26 Aug 2022

See all articles by Min Fang

Min Fang

University of Florida - Department of Economics; University of Toronto - Department of Economics

Libin Han

Dongbei University of Finance and Economics

Zibin Huang

Department of Economics, University of Rochester; Shanghai University of Finance and Economics - College of Business

Ming Lu

Shanghai Jiao Tong University (SJTU)

Li Zhang

Sun Yat-sen University (SYSU)

Date Written: August 22, 2022

Abstract

Place-based land policies may create spatial misallocation. We investigate a major policy in
China that aims to reduce regional development gaps by distributing more urban construction
land quotas to underdeveloped inland regions. We first show causal evidence that this policy
decreased firm-level TFP in more developed eastern regions relative to inland regions. We
then build a spatial equilibrium model with migration, land constraints, and agglomeration.
The model reveals that this policy led to substantial losses in national TFP and output. It
shrank regional output gap but lowered incomes of workers from underdeveloped regions by
hindering their migration to developed regions.

Keywords: Place-based Policy; Land Policy; Spatial Misallocation; Regional Inequality; China;

JEL Classification: O18, R58, E24, J61, R52;

Suggested Citation

Fang, Min and Han, Libin and Huang, Zibin and Lu, Ming and Zhang, Li, Place-based Land Policy and Spatial Misallocation: Theory and Evidence from China (August 22, 2022). Available at SSRN: https://ssrn.com/abstract=3846313 or http://dx.doi.org/10.2139/ssrn.3846313

Min Fang (Contact Author)

University of Florida - Department of Economics ( email )

Department of Economics
224 Matherly Hall
Gainesville, FL 32606
United States

HOME PAGE: http://www.minfang.info

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7
Canada

HOME PAGE: http://www.minfang.info

Libin Han

Dongbei University of Finance and Economics ( email )

China

Zibin Huang

Department of Economics, University of Rochester ( email )

United States

Shanghai University of Finance and Economics - College of Business ( email )

777 Guoding Road
Shanghai, 200433
China

Ming Lu

Shanghai Jiao Tong University (SJTU) ( email )

800 Dongchuan Rd
Minhang, Shanghai 200240
China

Li Zhang

Sun Yat-sen University (SYSU) ( email )

Guangzhou, Guangdong
China

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