Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/240374 
Authors: 
Year of Publication: 
2020
Series/Report no.: 
BOFIT Discussion Papers No. 23/2020
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
This paper proposes a spatial equilibrium model to quantify welfare losses from land market distortions in China. In the model, heterogeneous firms in a variety of sectors choose their locations across regions with costly trade, frictional labor 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 to higher productivity. Our framework incorporating land market distortions also helps clarify the mystery of China's undersized 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 that suggests that a coordinated land and labor migration reform would generate welfare gains and reduce regional inequality
Subjects: 
Misallocation
agglomeration
firm behaviors
land
productivity
city
China
JEL: 
F16
L22
L51
O47
R14
R30
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-351-5
Document Type: 
Working Paper

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