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    Bank of Finland, Rauhankatu 19 B, Helsinki

Xuan Fei (University of California, Davis): Misallocation in Chinese Land Market

We quantify the welfare losses of land market frictions in China by proposing a spatial equilibrium model where heterogeneous firms in a variety of sectors choose their locations across regions with costly trade, labor migration frictions, and land distortions. We match the land transaction and firm-level survey data to estimate land distortions for firms. Misallocation arises because similar firms are faced with various land prices, which effectively preventing more productive firms to choose bigger cities where they could benefit from agglomeration forces and access to higher productivity. Our framework incorporating land market frictions could explain the undersized cities in China, which is pointed out by Au and Henderson (2006) and Chauvin et al. (2017). Our estimates suggest large negative effects of land policies on the economic welfare in China. Further counterfactual exercise indicates that land reforms conducted together with labor migration reforms in China could generate larger welfare gains and smaller regional inequality at the same time.


BOFIT seminars are open to all researchers interested in the subjects covered. Those wishing to attend a seminar are kindly asked to register in advance, by email bofit(at)bof.fi or tel. +358 9 183 2268.

Seminars take place, as a rule, on Tuesdays, starting at 10.30 a.m.  Visitors are escorted to the seminar room from the Rauhankatu 19 B (Library) entrance.