Regional Competition in China under the Price Distortion of Construction Land: A Study Based on a Two‐regime Spatial Durbin Model
| Published date | 01 July 2019 |
| Author | Yongjian Liu,Hong Geng |
| DOI | http://doi.org/10.1111/cwe.12288 |
| Date | 01 July 2019 |
©2019 Institute of World Economics and Politics, Chinese Academy of Social Sciences
China & World Economy / 104–126, Vol. 27, No. 4, 2019
104
*Yongjian Liu, PhD Candidate, College of Economics and Management, Nanjing University of Aeronautics
and Astronautics, China. Email: shlx2010@sina.com; Hong Geng, Professor, College of Economics and
Management, Nanjing University of Aeronautics and Astronautics, China. Email: 850668708@qq.com. This
work is the research achievement of the Human Resource Management Research Base in Jiangsu, and was
supported by the Fundamental Research Funds for the Central Universities (No. NJ2018030), the Postgraduate
Research and Practice Innovation Program of Jiangsu Province (No. KYCX18-0238), and the Social Science
Foundation of Jiangsu Province ( No. 18GLB014). We also would like to thank the Division of Economics and
the Economic Growth Centre, School of Social Sciences, Nanyang Technological University, Singapore. We
especially thank Associate Professor Guiying Laura Wu and Associate Professor Qu Feng for their advice.
Regional Competition in China under the Price
Distortion of Construction Land: A Study Based
on a Two-regime Spatial Durbin Model
Yongjian Liu, Hong Geng*
Abstract
This study examines regional competition in China by considering the spatial correlation
and spillover effect of construction land price distortion using a two-regime Spatial
Durbin Model to investigate the patterns and trends of the competition between 285
cities in China from 2006 to 2015. The study nds: (i) price distortion of construction
land is a common phenomenon but the distortion index generally shows a declining
trend; (ii) regional competition through construction land price distortion shows a
weakly intensied pattern, although the competition patterns in the four regions of China
varied; and (iii) the intensity of competition between regions was lower during the 12th
Five-year Plan compared to the 11th Plan. The intensity of competition between cities
was also lower inside than outside urban agglomerations. These results provide policy
implications for remedying the price distortion of construction land and promoting
regional coordinated development.
Key words: construction land, price distortion, regional competition, spatial Durbin
model, two-regime model
JEL codes: C15, Q24
I. Introduction
The government’s ofcial promotion policy of using GDP as the main appraisal index
has forced many local governments to speed up the pace of development and ercely
©2019 Institute of World Economics and Politics, Chinese Academy of Social Sciences
Regional Competition under the Price Distortion of Construction Land 105
compete with other regions (Xu, 2011). However, a series of fiscal and taxation
reforms, such as fiscal decentralization (Chu and Zheng, 2013), tax reduction and
administrative fee canceling (Liu and Lu, 2015) restrict the development capital of
local governments. The price distortion of construction land based on the current
land requisition management system has effectively overcome this dilemma and
is an important mode of competition between Chinese local governments. Local
governments sell their industrial land at low prices to attract business investment,
expand employment, increase tax revenue, and thereby “win” the regional competition.
To make up for the fiscal gap they set quantitative limits on plots of commercial
and residential land and sell them at high prices. Thus, local governments expand
their infrastructure construction to attract more enterprises to invest. Although such
a two-sided land supply model provides a steady flow of capital and development
opportunities for urbanization in China (Guan et al., 2018), it also leads to a severe
price distortion of construction land.
The rate of economic growth is the primary measure of regional competition.
Numerous studies in the existing literature have investigated the various factors that
promote or inhibit the economic growth rate, such as the natural environment, market
segmentation, population structure, technological innovation, transportation facilities,
industrial agglomeration and international trade. Studies have also shown that several
government interventions in Chinese factor markets have slowed down the progress
of market reforms (Jovanovic, 2014). Although price distortion and the resource
misallocation of production factors, such as capital, labor and energy, could reduce total
factor productivity and lead to lower output, they have become the main approaches
of local governments in regional competition (Hsieh and Klenow, 2009; Aoki, 2012;
Brandt et al., 2013; Restuccia and Rogerson, 2013). However, no study has yet
investigated the role of construction land, which is also an important production factor
in China. The administrative monopoly of local governments on the price and supply
of land actually makes construction land an important tool for local governments in
regional competition.
In recent years, spatial econometrics have been widely applied to various elds of
study, such as innovation spillover, environmental protection and smog management
(Cai, 2015; Pi and Chen, 2016; Ju et al., 2017), but have rarely been used in studies of
price distortion. In fact, price distortion of construction land has a significant spatial
transfer effect as well as spillover effects during regional competition, making it a new
area of application in spatial econometrics.
This study uses the statistical data of 285 cities that were at or above the prefecture
level in China from 2006 to 2015 as the research sample and the degree of construction
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