To Build Outward or Upward: The Spatial Pattern of Urban Land Development in China

December 12 2016

This paper attempts to understand the patterns of urban land development in China from the political economy perspective. Our study is motivated by an interesting pattern observed in the past decade that in the initially more densely populated cities the urban land development was expanded more outwardly with a relatively low use intensity. We link this pattern with the career concerns of Chinese city leaders who pursue faster GDP growth and generate more fiscal revenues by expanding the city outwardly. We first develop a theoretical model to demonstrate how a city leader with career concerns chooses the spatial pattern of urban land development and derive several testable predications. First, city leaders with high career incentives are more likely to expand the city outward. The underlying mechanism that drives this is that by doing so the city leader can generate more land sale revenues for financing public infrastructure, which in turn enhances the economic performance and her career prospect. Secondly, the average use intensity of newly developed land is lower for city leaders with higher career incentive due to the existence of a mechanicaltrade-off between a city’s upward and outward expansion.Then we test these theoretical predictions using a large dataset on residential land transactions from 2000 to 2012 which are matched with the personal characteristics of city leaders during the same time period. We find robust evidence consistent with the predictions of our model. Our study highlights the important role of city leaders in shaping the unique patterns of urban land development in China.

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School of Economics, Fudan University. Research Fields: Urban Economics, Labor Economics, Applied Microeconomics.

Qinghua Zhang is an Associate Professor, Department of Applied Economics in Peking University. Her main research interests include urban and regional economics, public finance, and applied theory. 

Li-An Zhou is a Professor of Economics at Peking University Guanghua School of Management. His research interests include political economy, industrial organization, economic development, and Chinese economy.