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Working paper 729

Min Fang, Libin Han, Zibin Huang, Ming Lu, Li Zhang, "Place-based Land Policy and Spatial Misallocation: Theory and Evidence from China", 2022-08-22
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Abstract: Place-based land policies may create spatial misallocation. We investigate a major policy in China that aims to reduce regional development gaps by distributing more urban construction land quotas to underdeveloped inland regions. We first show causal evidence that this policy decreased firm-level TFP in more developed eastern regions relative to inland regions. We then build a spatial equilibrium model with migration, land constraints, and agglomeration. The model reveals that this policy led to substantial losses in national TFP and output. It shrinks regional output gap but lowers incomes of workers from underdeveloped regions by hindering their migration to developed regions.

Keywords: Place-based Policy; Land Policy; Spatial Misallocation; Regional Inequality; China;

JEL Classification: O18, R58, E24, J61, R52;