Land supply and industrial agglomeration: Extension of the new economic geography model with land elements incorporated

Abstract

Many countries and regions have adopted various incentive land policies to promote industrial agglomeration, but the effect of these policies is limited. This paper extends the new economic geography model, introduces the guiding role of land policy on industrial agglomeration, and explores the rules of land supply affecting industrial agglomeration based on the four cases of Chengdu, Beijing, Shandong, and Shenzhen in China. The study shows that (1) A stable equilibrium for the manufacturing industry agglomeration may still be formed for enterprises not highly dependent on land without incentive land policies. (2) For enterprises with moderate dependence on the land, elastic adjustment of the land supply according to the land demand has a positive effect on the stable equilibrium of industrial agglomeration. (3) For enterprises highly dependent on land, the effect of incentive land supply policies to promote industrial agglomeration may not be significant. (4) Small-scale agricultural land expropriation can, to a certain extent, promote the agglomeration of manufacturing industries. However, suppose the cost of manufacturing land reduced by agricultural land expropriation cannot compensate for the increase in the cost of agricultural products due to the reduction of agricultural land. In that case, the market crowding effect that promotes the dispersion of enterprises still exists. Therefore, the government should fully examine the degree of dependence on the land of various enterprises and formulate targeted land policies, measure the scope of land expropriation that does not disturb the agricultural market, stabilize the cost of agricultural products required by the manufacturing industry, and realize the stable agglomeration for the manufacturing industry from a comprehensive perspective with agriculture incorporated.