Estimating urban green space production in the macroeconomy: From public goods to a profitable method of investment

Abstract

Accompanied by long-term urbanization, the Chinese production of urban green space (UGS) is gradually transforming into a land operation strategy for local governments to maximize land lease revenue. This paper presents empirical research on different types of investment, urban space, and gross domestic product (GDP) with a simultaneous equations model (SEM) of econometrics to test the capital circulation and accumulation of UGS production in China. The regression results strongly support our hypothesis that UGS production contributes to GDP growth and that there is an economic feedback loop between them. One billion RMB of the government’s fixed-asset investments produces 0.899 km2 UGS in the long term, and this UGS yields 1.749 billion RMB tertiary industry GDP in return. Thus, the total return rate in the representative economic chain of “fixed-asset investment-UGS-tertiary industry GDP” is greater than 174.9%. However, this percentage also reveals the weakness of providing rewards in maximizing land lease relative to urban industrial, traffic and residential spaces. We also estimate the lagged correlation coefficient with a rational distributed lag model, showing that the production of UGS has a longer-term and more profitable influence on tertiary industry GDP than on secondary industry GDP. The long-run effect of investment on UGS lasts for approximately five years in producing secondary industry GDP and more than ten years in producing tertiary industry GDP. A continuous increase in fixed-asset investments in UGS would achieve a balanced return rate (100%) and start to produce profits after the 4th year, according to the economic chain of ΔFAI-ΔUGS-ΔTGDP.