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Misallocation in the Chinese land market

Author

Listed:
  • Xuan Fei
  • Yumin Hu
  • Mingzhi (Jimmy) Xu

Abstract

We develop a spatial equilibrium model to quantify welfare losses from land market distortions in China. In the model, heterogeneous firms in various sectors choose their locations across regions with costly trade, frictional labour migration and land market distortions. We match land transaction and firm‐level survey data to estimate land market distortions for firms. Misallocation arises when similar firms are faced with land prices that effectively prevent productive firms from establishing in large cities where they can benefit from agglomeration forces and access higher productivity. Our framework incorporating land market distortions also sheds light on the mystery of China's undersized big cities, a phenomenon noted by Au and Henderson (2006) and Chauvin et al. (2017). Our estimates suggest large negative effects of land policies on the economic welfare in China. We end with a counterfactual exercise revealing that a coordinated land and labour migration reform would generate welfare gains and reduce regional inequality. Mauvaise répartition au sein du marché foncier chinois. Nous mettons au point un modèle d'équilibre spatial pour quantifier les pertes de prospérité découlant des distorsions du marché foncier en Chine Dans le modèle, des entreprises hétérogènes de divers secteurs choisissent de s'établir dans des régions où les échanges commerciaux sont coûteux, la migration de la main‐d'œuvre provoque des frictions et le marché foncier subit des distorsions. Nous associons les opérations foncières et les données de sondage à l'échelon des entreprises pour estimer les distorsions du marché foncier pour ces dernières. Une mauvaise répartition se produit lorsque des entreprises semblables se heurtent à des prix fonciers qui empêchent les entreprises productives de s'établir dans de grandes villes où elles peuvent tirer profit des forces de l'agglomération et accroître leur productivité. Notre cadre, qui intègre les distorsions du marché foncier, met aussi en lumière le mystère des grandes villes de taille sous‐optimale en Chine, un phénomène noté par Au et Henderson (2006) et Chauvin et coll. (2017). Nos estimations suggèrent de grands effets négatifs des politiques foncières sur la prospérité économique en Chine. Nous concluons par un exercice hypothétique révélant qu'une réforme coordonnée du domaine foncier et de la migration de la main‐d'œuvre générerait des gains pour la prospérité et réduirait les inégalités régionales.

Suggested Citation

  • Xuan Fei & Yumin Hu & Mingzhi (Jimmy) Xu, 2024. "Misallocation in the Chinese land market," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 57(4), pages 1360-1390, November.
  • Handle: RePEc:wly:canjec:v:57:y:2024:i:4:p:1360-1390
    DOI: 10.1111/caje.12734
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