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

111 Pages Posted: 18 May 2021 Last revised: 27 Mar 2024

See all articles by Min Fang

Min Fang

University of Florida - Department of Economics

Libin Han

Dongbei University of Finance and Economics

Zibin Huang

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 policies may create spatial misallocation. We investigate a major policy in China that aims to reduce regional development gaps by distributing more urban land quotas to underdeveloped inland regions. We show empirical evidence that this policy decreased productivity in more developed eastern regions relative to inland regions. We then build a prefecture-level spatial equilibrium model with migration, land constraints, and agglomeration. The model reveals that this policy led to substantial output and productivity losses by distorting both labor and production across regions. Regional output gaps shrank, but workers from underdeveloped regions reduced their migration to developed regions and earned less. Counterfactuals show that national output would have been 1.8% higher in 2010 if the policy had not been implemented, and workers from underdeveloped regions would have earned 7% more income. Instead, regional monetary transfer policies could reduce regional inequality without significantly increasing spatial misallocation.

Keywords: Place-based Policy; Land Policy; Spatial Misallocation; Migration; Labor Mobility; 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 )

224 Matherly Hall
Gainesville, FL 32606
United States

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

Libin Han

Dongbei University of Finance and Economics ( email )

China

Zibin Huang

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 )

Haizhu District
Guangzhou, Guangdong
China

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