Instrumental land use investment-driven growth in China

Abstract

In the past decade or so, local governments in China have significantly increased their land development activities by acquiring land from farmers and leasing it on a large scale to industrial and commercial developers. This paper is an analysis of how land is used under China's existing institutional background as a competitive incentive for local investment. It is argued that local land development activities have contributed to an investment-driven growth in China that is not sustainable in the long run. On the basis of a panel data covering all provinces from 1998 to 2005, we empirically analyze the impacts of public land leasing on local fiscal revenue and gross domestic product (GDP). Policy implications are drawn with regard to further steps in land reforms.

Keywords:

• land finance
• investment-driven growth

JEL Classification:

• H71
• O14
• Q15

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Erratum

Acknowledgements

We would like to recognize the China National Science Foundation (grant #70633002 and 70433002), the Chinese Ministry of Science and Technology Key Technologies R&D Program (grant # 2006BAJ11B06) and the Lincoln Institute of Land Policy for financial support. All errors are solely ours.

Notes

∗significant at 10%

∗∗significant at 5%

∗∗∗significant at 1%; 3, L, L2, L3, L4, L5 means 1, 2 3, 4, 5 period lagged values respectively; 4. All revenues are deflated using 1998 as the base year.

∗significant at 10%

∗∗significant at 5%

∗∗∗significant at 1%; 3, L, L2, L3, L4, L5 means 1,2 3, 4, 5 period lagged values respectively; 4, All GDPs are deflated using 1998 as the base year.