Land costs, government intervention, and migration of firms: The case of China

Tingfeng Tang, Zhigang Li, Jinlan Ni () and Jia Yuan

China Economic Review, 2020, vol. 64, issue C

Abstract: By using unique firm relocation data in China, we first document the relocation behavior of Chinese firms and show that less government intervention (relative to market forces) can improve economic efficiency by facilitating industrial relocation which saves on costs. Ever since China joined the World Trade Organization (WTO) in 2001, investments have poured into the coastal region, which in turn, have almost tripled land costs in the major coastal cities. We exploit this land cost shock in the early 2000s to identify its effect on the relocation behavior of firms. Specifically, we instrument land price growth with the access of a city to foreign markets (approximated by distance to Shanghai), and then estimate the differential impact of land costs on firms regarding land reliance. Our major findings are as follows: (1) the migration rate of Chinese firms in China is on average 3.2%, (2) Rising land costs drive firms to migrate, and firms that use more land-intensive technology are more compelled to migrate, and (3) in regions where the local government intervention is stronger (the market is less developed), the relocation decision of Chinese firms is distorted in the sense that firms are less likely to relocate despite surging land prices due to government intervention.

Keywords: Firm relocation; Government intervention; Resource misallocation (search for similar items in EconPapers)
JEL-codes: H10 L20 R39 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:64:y:2020:i:c:s1043951x20301577

DOI: 10.1016/j.chieco.2020.101560

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