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Local Land Allocation and Demographic Transitions across Time and Space in China
Abstract: This paper argues that the dramatic population decline in China in recent years is an unintended consequence of local governments’ land allocation decisions, driven by industrial discounts in the land market. We construct a dynamic spatial overlapping-generation framework to capture the interplay between governments’ land allocation, population controls, and public education expenditures on household family-planning decisions. By estimating the model to match empirical population distributions and conducting counterfactual analysis, we find two key results: First, under the One Child Policy, China’s realized fertility rate was significantly below the fertility rate needed for natural population replacement. However, shifting to a free land market could potentially have reduced this fertility rate gap by 16.33%. Second, the geographic variations in fertility rates across cities increased following the removal of the fine, suggesting that the effects of land allocation and housing prices would become more pronounced in the future.
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.
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