JOB MARKET PAPER

Local Land Allocation and Demographic Transitions across Time and Space in China

Abstract:  How would governments allocate land usage when given the authority to, and how would it affect a country’s demographic distributions across time and space? I explore the allocation behavior in China’s land market, where institutionally all urban land is state-owned, and local governments afford discretion in allocating the usage. I develop a spatial-OLG framework to capture the interplay of governments’ land allocation, population controls, and public education expenditures on household family planning decisions. Model estimation indicates that cities with higher productivities and amenities tend to disproportionately allocate more land to industrial use instead of residential use, which explains the dramatic population decline observed in China in recent years. Compared with a free land market equilibrium, local governments tend to prioritize industrial land usage, aiming at a higher industrial output, while at the expense of lower fertility rates and household welfare. Notably, under the One Child Policy, the realized fertility rate is significantly below the fertility rate needed for natural population replacement, but shifting to a free land market could potentially help China address this fertility rate gap from replacement level by 16.33%.

Compared to residential land, industrial lands are leased at an average discount of 75.5% in China. This price gap is even wider in more developed cities (southeastern areas). 

Calibrated productivity on the horizontal and amenities on the vertical. Ad the city productivity increase, the industrial land share tends to increase, yet this trend is not that critical for amenity.

A negative correlation between industrial land share and fertility rate is observed from both the empirical and model estimation.

Compare to a free land market regime, cities with a higher share of industrial land could see greater increases in household welfare, while their industrial outputs would decrease.

After the abolition of One-Child Policy, both the average fertility rate and the variation across cities increase:  the impacts of local land allocation and so  housing prices are intensified.