To Build Outward or Upward? The Spatial Pattern of Urban Land Development in China

Abstract

This paper studies the determinants of the spatial pattern of urban land development. Our study is motivated by an interesting fact observed in the past decade, the fact that the fastest-growing Chinese cities have undergone outward expansion of urban land development with relatively low use intensity. We link this pattern with the career concerns of local leaders who act as city developers. We first develop a theoretical model to demonstrate how a city leader whose career advancement depends on city economic growth chooses the spatial pattern of urban land development. Two major testable predications are derived. First, city leaders with high career incentives are more likely to expand the city outward in order to boost land sale revenues for financing public infrastructure and enhancing economic growth. Second, the average use intensity of newly developed land is lower for city leaders with stronger career incentives due to the trade-off between a city’s upward and outward expansion. We test the theory using a large dataset of residential land transactions matched with city leaders from 2000 to 2012. We find robust evidence consistent with the predictions of our model.