Land supply marketization, economic fluctuations and welfare: A quantitative analysis for China
Abstract
Land supply in China is planned by governments, and the supply ratios of various types of land are in relatively rigid administrative control. This paper constructs a DSGE model to study the relationship between land supply marketization in China and economic fluctuations. Moreover, this paper evaluates the social welfare gains from land marketization. We document that the government’s land planning constraint impacts consumption and social welfare through the land price and final output, causing resource misallocation losses in aggregate investment and output. Quantitatively, the optimal upper limit of industrial land supply is about 40% to achieve the maximum social welfare. This paper stresses the necessity of revitalizing China’s land market, and simultaneously speeding up the marketization of collectively operated construction land.
Keyword : land supply marketization, residential land, rural collectively operated construction land, economic fluctuations, social welfare
How to Cite
He, Y., Wu, M., & Jiang, H. (2024). Land supply marketization, economic fluctuations and welfare: A quantitative analysis for China. International Journal of Strategic Property Management, 28(3), 152–162. https://doi.org/10.3846/ijspm.2024.21457
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Le, M. L., Zhu, J., & Nguyen, H. L. (2022). Land redevelopment under ambiguous property rights in transitional Vietnam: A case of spatial transformation in Hanoi city center. Land Use Policy, 120, Article 106290. https://doi.org/10.1016/j.landusepol.2022.106290
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Liu, Z., Waggoner, D. F., & Zha, T. (2011). Sources of macroeconomic fluctuations: A regime switching DSGE approach. Quantitative Economics, 2(2), 251–301. https://doi.org/10.3982/QE71
Liu, Z., Wang, P., & Zha, T. (2013). Land-price dynamics and macroeconomic fluctuation. Econometrica, 81(3), 1147–1184. https://doi.org/10.3982/ECTA8994
Liu, Z., Miao, J., & Zha, T. (2016b). Land prices and unemployment. Journal of Monetary Economics, 80, 86–105. https://doi.org/10.1016/j.jmoneco.2016.05.001
Miao, J., Wang, P., & Zha, T. (2014). Liquidity premia, price-rent dynamics, and business cycles (Working Paper No. 2014-15). Federal Reserve Bank of Atlanta. https://doi.org/10.2139/ssrn.2580439
Miao, J., Wang, P., & Zhou, J. (2015). Asset bubbles, collateral, and policy analysis. Journal of Monetary Economics, 76(12), 57–70. https://doi.org/10.1016/j.jmoneco.2015.08.004
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National Bureau of Statistics. (2003–2022). China statistical yearbook. China Statistical Publishing House.
Piazzesi, M., Schneider, M., & Tuzel, S. (2007). Housing, consumption and asset pricing. Journal of Financial Economics, 3(3), 531–569. https://doi.org/10.1016/j.jfineco.2006.01.006
Saiz, A. (2010). The geographic determinants of housing supply. Quarterly Journal of Economics, 125(3), 1253–1296. https://doi.org/10.1162/qjec.2010.125.3.1253
Sun W., Song, Z., & Xia, Y. (2020). Government-enterprise collusion and land supply structure in Chinese cities. Cities, 105(1), Article 102849. https://doi.org/10.1016/j.cities.2020.102849
Taylor, J. B. (2007). Housing and monetary policy (Working Paper No. 13682). National Bureau of Economic Research. https://doi.org/10.3386/w13682
Tian, L., & Ma, W. (2009). Government intervention in city development of China: A tool of land supply. Land Use Policy, 26(3), 599–609. https://doi.org/10.1016/j.landusepol.2008.08.012
Turner, M. A., Haughwout, A., & Klaauw, W. (2014). Land use regulation and welfare. Econometrica, 82(4), 1341–1403. https://doi.org/10.3982/ECTA9823
Wang, C., & Zhang, Q. (2019). Land cronyism and corporate political cycles in China. Social Science Electronic Publishing. https://doi.org/10.2139/ssrn.3310671
Wang, R., & Tan, R. (2020). Efficiency and distribution of rural construction land marketization in contemporary China. China Economic Review, 60, Article 101223. https://doi.org/10.1016/j.chieco.2018.09.004
Wang, W. (2022). Rethinking local government perceptions of land value capture in land marketization: The lens of dominant consideration(s) in interest-balancing acts. Cities, 122, Article 103528. https://doi.org/10.1016/j.cities.2021.103528
Wei, X., Wang, N., Luo, P., Yang, J., Zhang, J., & Lin, K. (2021). Spatiotemporal assessment of land marketization and its driving forces for sustainable urban-rural development in Shaanxi province in China. Sustainability, 13(14), Article 7755. https://doi.org/10.3390/su13147755
Yao, W., & Wang, C. (2022). Agricultural land marketization and productivity: Evidence from China. Journal of Applied Economics, 25(1), 22–36. https://doi.org/10.1080/15140326.2021.1997045
Yang, Y., Xue, R., Zhang, X., Cheng, Y., & Shan, Y. (2023). Can the marketization of urban land transfer improve energy efficiency? Journal of Environmental Management, 329(1), Article 117126. https://doi.org/10.1016/j.jenvman.2022.117126
Yu, Y., & Luo, N. (2023). Does land marketization improve eco-efficiency? Evidence from China. Technological and Economic Development of Economy, 29(2), 539–563. https://doi.org/10.3846/tede.2023.18085
Zhang, R., Yang, R., & Huang, Y. (2022). Does the marketization of land transfer have an impact on carbon emissions? Evidence from China. Frontiers in Environmental Science, 10, Article 1034273. https://doi.org/10.3389/fenvs.2022.1034273
Albouy, D., & Stuart, B. A. (2020). Urban population and amenities: The neoclassical model of location. International Economic Review, 61(1), 127–158. https://doi.org/10.1111/iere.12419
Campbell, J. R., & Hercowitz, Z. (2006). The role of collateralized household debt in macroeconomic stabilization (Working Paper No. 11330). National Bureau of Economic Research. https://doi.org/10.3386/w11330
Campbell, J. Y., & Cocco, J. F. (2007). How do house prices affect consumption? Evidence from micro data. Journal of Monetary Economics, 54(3), 591–621. https://doi.org/10.1016/j.jmoneco.2005.10.016
Chaney, T., Sraer, D., & Thesma, D. (2012). The collateral channel: How real estate shocks affect corporate investment. American Economic Review, 102(6), 2381–2409. https://doi.org/10.1257/aer.102.6.2381
Chang, C., Liu, Z., & Spiegel, M. M. (2015). Capital controls and optimal Chinese monetary policy. Journal of Monetary Economics, 74(9), 1–15. https://doi.org/10.1016/j.jmoneco.2015.04.003
Chen, K., & Wen, Y. (2017). The great housing boom of China. American Economic Journal: Macroeconomics, 9(2), 73–114. https://doi.org/10.1257/mac.20140234
Cheng, J., Zhao, J., Zhu, D., Jiang, X., Zhang, H., & Zhang, Y. (2022). Land marketization and urban innovation capability: Evidence from China. Habitat International, 122, Article 102540. https://doi.org/10.1016/j.habitatint.2022.102540
Christiano, L., Eichenbaum, M., & Evans, C. (2005). Nominal rigidities and the dynamics effects of a shock to monetary policy. Journal of Political Economy, 113(1), 1–45. https://doi.org/10.1086/426038
Fan, X., Qiu, S., & Sun, Y. (2020). Land finance dependence and urban land marketization in China: The perspective of strategic choice of local governments on land transfer. Land Use Policy, 99, Article 105023. https://doi.org/10.1016/j.landusepol.2020.105023
Gan, J. (2007). Collateral, debt capacity, and corporate investment, evidence from a natural experiment. Journal of Financial Economics, 85(3), 709–734. https://doi.org/10.1016/j.jfineco.2006.06.007
Greenwood, J., Hercowitz, Z., & Krusell, P. (1997). Long-run implications of investment-specific technological change. American Economic Review, 87(3), 342–362.
Guo, S., Liu, L., & Zhao, Y. (2015). The business cycle implications of land financing in China. Economic Modelling, 46(1), 225–237. https://doi.org/10.1016/j.econmod.2014.12.033
He, C., Wright, R., & Zhu, Y. (2015). Housing and liquidity. Review of Economic Dynamics, 18(3), 435–455. https://doi.org/10.1016/j.red.2014.10.005
Huang, D., & Chan, R. C. K. (2018). On ‘land finance’ in urban China: Theory and practice. Habitat International, 75, 96–104. https://doi.org/10.1016/j.habitatint.2018.03.002
Iacoviello, M. (2005). House prices, borrowing constraints, and monetary policy in the business cycle. Review of Economic Dynamics, 95(3), 739–764. https://doi.org/10.1257/0002828054201477
Iacoviello, M., & Neri, S. (2010). Housing market spillovers: Evidence from an estimated DSGE model. American Economic Review, 2(2), 125–164. https://doi.org/10.1257/mac.2.2.125
Jacoby, H. G., & Minten, B. (2007). Is land titling in Sub-Saharan Africa cost-effective? Evidence from Madagascar. The World Bank Economic Review, 21(3), 461–485. https://doi.org/10.1093/wber/lhm011
Jiang, R., & Lin, G. C. S. (2021). Placing China’s land marketization: The state, market, and the changing geography of land use in Chinese cities. Land Use Policy, 103, Article 105293. https://doi.org/10.1016/j.landusepol.2021.105293
Jiang, X., Lu, X., Liu, Q., Chang, C., & Qu, L. (2021). The effects of land transfer marketization on the urban land use efficiency: An empirical study based on 285 cities in China. Ecological Indicators, 132, Article 108296. https://doi.org/10.1016/j.ecolind.2021.108296
Jin, W., & Zhou, C. (2022). Effect of land marketization level and land prices on foreign direct investment in China. Land, 11(9), Article 1433. https://doi.org/10.3390/land11091433
Kydland, F. E., & Prescott, E. C. (1982). Time to build and aggregate fluctuations. Econometrica, 50(6), 1345–1370. https://doi.org/10.2307/1913386
Kiyotaki, N., & Moore, J. (1997). Credit cycles. Journal of Political Economy, 105(2), 211–248. https://doi.org/10.1086/262072
Kwon, E. (1998). Monetary policy, land prices, and collateral effects on economic fluctuations: Evidence from Japan. Journal of the Japanese and International Economies, 12(3), 175–203. https://doi.org/10.1006/jjie.1998.0400
Le, M. L., Zhu, J., & Nguyen, H. L. (2022). Land redevelopment under ambiguous property rights in transitional Vietnam: A case of spatial transformation in Hanoi city center. Land Use Policy, 120, Article 106290. https://doi.org/10.1016/j.landusepol.2022.106290
Li, H., Zhang, X., Zhang, X., & Wu, Y. (2018). Utilization benefit of cultivated land and land institution reforms: Economy, society and ecology. Habitat International, 77, 64–70. https://doi.org/10.1016/j.habitatint.2017.12.006
Liu, T., Cao, G., Yan, Y., & Wang, R. Y. (2016a). Urban land marketization in China: Central policy, local initiative, and market mechanism. Land Use Policy, 57, 265–276. https://doi.org/10.1016/j.landusepol.2016.06.001
Liu, Z., Waggoner, D. F., & Zha, T. (2011). Sources of macroeconomic fluctuations: A regime switching DSGE approach. Quantitative Economics, 2(2), 251–301. https://doi.org/10.3982/QE71
Liu, Z., Wang, P., & Zha, T. (2013). Land-price dynamics and macroeconomic fluctuation. Econometrica, 81(3), 1147–1184. https://doi.org/10.3982/ECTA8994
Liu, Z., Miao, J., & Zha, T. (2016b). Land prices and unemployment. Journal of Monetary Economics, 80, 86–105. https://doi.org/10.1016/j.jmoneco.2016.05.001
Miao, J., Wang, P., & Zha, T. (2014). Liquidity premia, price-rent dynamics, and business cycles (Working Paper No. 2014-15). Federal Reserve Bank of Atlanta. https://doi.org/10.2139/ssrn.2580439
Miao, J., Wang, P., & Zhou, J. (2015). Asset bubbles, collateral, and policy analysis. Journal of Monetary Economics, 76(12), 57–70. https://doi.org/10.1016/j.jmoneco.2015.08.004
Ministry of Natural Resources. (2003–2022). China land and resources statistical yearbook. Geological Publishing House.
National Bureau of Statistics. (2003–2022). China statistical yearbook. China Statistical Publishing House.
Piazzesi, M., Schneider, M., & Tuzel, S. (2007). Housing, consumption and asset pricing. Journal of Financial Economics, 3(3), 531–569. https://doi.org/10.1016/j.jfineco.2006.01.006
Saiz, A. (2010). The geographic determinants of housing supply. Quarterly Journal of Economics, 125(3), 1253–1296. https://doi.org/10.1162/qjec.2010.125.3.1253
Sun W., Song, Z., & Xia, Y. (2020). Government-enterprise collusion and land supply structure in Chinese cities. Cities, 105(1), Article 102849. https://doi.org/10.1016/j.cities.2020.102849
Taylor, J. B. (2007). Housing and monetary policy (Working Paper No. 13682). National Bureau of Economic Research. https://doi.org/10.3386/w13682
Tian, L., & Ma, W. (2009). Government intervention in city development of China: A tool of land supply. Land Use Policy, 26(3), 599–609. https://doi.org/10.1016/j.landusepol.2008.08.012
Turner, M. A., Haughwout, A., & Klaauw, W. (2014). Land use regulation and welfare. Econometrica, 82(4), 1341–1403. https://doi.org/10.3982/ECTA9823
Wang, C., & Zhang, Q. (2019). Land cronyism and corporate political cycles in China. Social Science Electronic Publishing. https://doi.org/10.2139/ssrn.3310671
Wang, R., & Tan, R. (2020). Efficiency and distribution of rural construction land marketization in contemporary China. China Economic Review, 60, Article 101223. https://doi.org/10.1016/j.chieco.2018.09.004
Wang, W. (2022). Rethinking local government perceptions of land value capture in land marketization: The lens of dominant consideration(s) in interest-balancing acts. Cities, 122, Article 103528. https://doi.org/10.1016/j.cities.2021.103528
Wei, X., Wang, N., Luo, P., Yang, J., Zhang, J., & Lin, K. (2021). Spatiotemporal assessment of land marketization and its driving forces for sustainable urban-rural development in Shaanxi province in China. Sustainability, 13(14), Article 7755. https://doi.org/10.3390/su13147755
Yao, W., & Wang, C. (2022). Agricultural land marketization and productivity: Evidence from China. Journal of Applied Economics, 25(1), 22–36. https://doi.org/10.1080/15140326.2021.1997045
Yang, Y., Xue, R., Zhang, X., Cheng, Y., & Shan, Y. (2023). Can the marketization of urban land transfer improve energy efficiency? Journal of Environmental Management, 329(1), Article 117126. https://doi.org/10.1016/j.jenvman.2022.117126
Yu, Y., & Luo, N. (2023). Does land marketization improve eco-efficiency? Evidence from China. Technological and Economic Development of Economy, 29(2), 539–563. https://doi.org/10.3846/tede.2023.18085
Zhang, R., Yang, R., & Huang, Y. (2022). Does the marketization of land transfer have an impact on carbon emissions? Evidence from China. Frontiers in Environmental Science, 10, Article 1034273. https://doi.org/10.3389/fenvs.2022.1034273