Strategic interaction in local governments’ industrial land supply: Evidence from China

Abstract

Land is an important tool for local governments to attract investments and promote local economic growth in China. Based on panel data of Chinese prefecture-level cities from 2003 to 2012, this paper employs spatial panel data models to examine the strategic interaction among local governments in industrial land supply and to indentify its possible sources. The empirical results show that there exists strategic interaction among local governments in industrial land leasing price. Local governments’ industrial land leasing price is significantly impacted by the action of neighbouring cities. They mimic each other – in terms of industrial land leasing price to attract outside investments. Empirical evidence reveals that the strategic interaction comes from both yardstick competition and resource flow effects. Local governments react more to their neighbours’ industrial land leasing price during political cycle periods.