Land Lease，Resource Misallocation and Total Factor Productivity

Abstract

Since the reform and opening up, the Chinese economy has achieved rapid growth, accompanied by the gradual slowdown in the growth rate of total factor productivity. Compared with developed countries, China’s total factor productivity is still at a low level and there is a serious imbalance between regions. The rapid rise in house prices and land prices has made local governments’ development mode centered on land transfer, and it has been classified as the culprit” of high housing prices. What is worth exploring is: What impact does local governments’ development mode with land transfer as its core have on China’s total factor productivity? Can we explain the trend of change and regional differences in China’s total factor productivity from the perspective of land lease? This paper focuses on the impact of local governments’ land lease behavior on urban total factor productivity. Based on the existing research literature, this paper proposes two hypotheses of this study through the analysis of the status quo and the theoretical mechanism. On the empirical test, the SFA method is used to calculate the overall TFP of 230 prefecture-level and above cities. The instrument variable method tests the impact of local governments’ land lease behavior on the overall TFP of the city, and the adjustment effect of land price distortion on urban TFP under the horizontal subsidy” mode. At the same time, the matching data of the industrial enterprise database is used to verify the intermediate mechanism that the scale expansion of land lease income affects TFP. The main conclusions of the study are as follows: First, the expansion of land lease income significantly inhibits the total factor productivity of the city; local governments’ land fiscal expansion enhances the scale efficiency, but significantly inhibits the improvement of urban technology and technology allocation efficiency, and then has a hindrance to the total factor productivity of the city. Second, in the process of the expansion of land sale income, local governments tend to sell commercial land at high prices and transfer industrial land at low prices. The mode of horizontal subsidy” leads to land price distortion, and further aggravates the inhibition of total factor productivity by the expansion of land lease income. Third, the results of the mechanism test show that the excessive expansion of local governments’ land lease income leads to the resources misallocation” effect at the industry and city level, which in turn inhibits the total factor productivity of the city. The conclusions of the paper have important reference value for China’s land finance system reform and the total factor productivity improvement of the city. The marginal contributions of the paper mainly lie in three aspects: First, it enriches the existing research on total factor productivity from the perspective of local governments’ land lease. Second, it theoretically analyzes the impact of land lease behavior on urban total factor productivity. The intermediate mechanism reveals the resource misallocation” effect brought about by the excessive expansion of land lease income, and the overall efficiency loss caused by land price distortion under the local governments’ horizontal subsidy” mode. Third, the empirical study uses the instrumental variable method to solve the endogenous problems of local governments’ land lease behavior and economic activities.