Constrained growth: Does land supply restriction affect manufacturing firm output?

Abstract

This paper investigates how land supply restriction affects firms' output. Previous literature has extensively examined the effect of land regulations, while neglecting the impact on firms' output. Using data from China's Annual Surveys of Industrial Firms during 1998–2013, we examine the effects on the output of manufacturing firms and explore the underlying mechanisms. Results suggest that land supply restriction reduces the output of manufacturing firms. The mechanism analysis reveals that it increases land prices, which raises firms' financial costs, inhibits their investments, and ultimately leads to a decline in output. The negative effect is more pronounced for non-SOEs that face stricter land constraints. It is also stronger in cities with higher market-oriented land transaction ratio, where land prices are more responsive to land quantity restrictions. Our empirical findings have significant policy implications for the regulations of land supply quantity.