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The Costs of Political Manipulation of Factor Markets in China

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  • Henderson, J. Vernon
  • Zhang, Qinghua
  • Zheng, Siqi
  • Su, Dongling

Abstract

Despite China’s economic achievements, factor market reforms have been slow. We analyze local political manipulation of land markets, along with capital market favoritism of certain cities, using a structural general equilibrium model. We estimate city-by-city local leaders’ preferences over GDP enhancement versus residents’ welfare. Equalizing capital prices across cities would increase worker welfare and returns to capital by 2.6% and 11%, respectively. Further, forcing local leader to focus just on enhancing welfare of residents would increase welfare by another 5.3%. Reforms would significantly reduce the population of favored cities like Tianjin and Beijing, while raising that of cities like Shenzhen.

Suggested Citation

  • Henderson, J. Vernon & Zhang, Qinghua & Zheng, Siqi & Su, Dongling, 2020. "The Costs of Political Manipulation of Factor Markets in China," CEPR Discussion Papers 15247, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:15247
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    References listed on IDEAS

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    1. David L. Hummels & Georg Schaur, 2013. "Time as a Trade Barrier," American Economic Review, American Economic Association, vol. 103(7), pages 2935-2959, December.
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    Cited by:

    1. Bhatt, Vipul & Liao, Mouhua & Zhao, Min Qiang, 2023. "Government policy and land price dynamics: A quantitative assessment of China’s factor market reforms," Regional Science and Urban Economics, Elsevier, vol. 98(C).
    2. Henderson, J. Vernon & Su, Dongling & Zhang, Qinghua & Zheng, Siqi, 2022. "Political manipulation of urban land markets: Evidence from China," Journal of Public Economics, Elsevier, vol. 214(C).

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