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Land allocation and industrial agglomeration: Evidence from the 2007 reform in China

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  • Tian, Wenjia
  • Wang, Zhi
  • Zhang, Qinghua

Abstract

This paper highlights the crucial role of land allocation mechanisms in fostering industrial agglomeration by examining China's 2007 industrial land market reform. By introducing transparency into the land-selling process, the reform facilitated more buyers to compete for land (as evidenced by increased land sale prices), enabling local governments to allocate land to the most suitable users. Utilizing comprehensive data sets that include information on initial local industrial structure, new industrial establishments, and industrial land transactions, the empirical analysis finds that the reform significantly increased the entry of firms from industries aligned with local specialization, particularly in regions that implemented the reform more strictly. Industries characterized by substantial unrealized agglomeration economies or highly localized spillover effects experienced amplified effects. A well-functioning capital market further enhanced the land market reform's impact. Supporting evidence demonstrates the reform's positive effect on economic growth (as evidenced by changes in nighttime luminosity), potentially through increasing local firms' TFP.

Suggested Citation

  • Tian, Wenjia & Wang, Zhi & Zhang, Qinghua, 2024. "Land allocation and industrial agglomeration: Evidence from the 2007 reform in China," Journal of Development Economics, Elsevier, vol. 171(C).
  • Handle: RePEc:eee:deveco:v:171:y:2024:i:c:s0304387824001007
    DOI: 10.1016/j.jdeveco.2024.103351
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    More about this item

    Keywords

    Land allocation mechanism; Transparency; Industrial agglomeration; Spatial distribution of new entrants; China;
    All these keywords.

    JEL classification:

    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R5 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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