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Residential housing investment and local corruption: Empirical evidence from the Chinese housing market

Author

Listed:
  • Chih, Yao-Yu
  • Demir, Firat
  • Hu, Chenghao
  • Liu, Junyi
  • Shen, Hewei

Abstract

Using the Chinese housing market as a case study, we develop a stylized model to illustrate the relationship between local corruption and investment in the residential housing sector. The model delivers four main predictions: i) higher corruption increases investment in the residential housing sector; ii) higher corruption decreases investment in the non-housing sector; iii) there is a threshold effect of corruption on over-investment disequilibrium in the residential housing sector and corruption correlates with the “over-investment” problem only when it exceeds a threshold; and iv) city attractiveness can negate the effect of corruption on housing “over-investment.” We test these model predictions using a newly developed prefecture city-level corruption dataset and find empirical support for all four model predictions.

Suggested Citation

  • Chih, Yao-Yu & Demir, Firat & Hu, Chenghao & Liu, Junyi & Shen, Hewei, 2026. "Residential housing investment and local corruption: Empirical evidence from the Chinese housing market," European Journal of Political Economy, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:poleco:v:93:y:2026:i:c:s0176268026000455
    DOI: 10.1016/j.ejpoleco.2026.102850
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    Keywords

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    JEL classification:

    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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