Determinants of Urban Land Supply in China: How Do Political Factors Matter?

This paper explores two political factors for their potential effects on urban land supply in China: corruption, and competition for promotion. We find that standard urban-economic predictions hold in the sense that both population and income increases are strongly significant determinants for the increase in urban land supply. Conditional on these demand-side factors, we find that the usage of two-stage auctions (as a proxy for corruption) is highly correlated with the increase in land supply. The corruption effects are strongest for commercial land, followed by residential land and then industrial land. To shed light on the competition motives among prefectural leaders, we examine how the number of years in office affects land supply, and distinguish among different hypotheses. Our empirical results show robust rising trends in land sales (both in quantity and revenue). These results are consistent with the hypothesis that the impatience and anxiety in later years from not being promoted may contribute to the increase in land sales revenue in later years; they are inconsistent with the hypothesis that prefectural leaders may give up and become more corrupt in later years. We also find that prefectural leaders may aim for larger land sales revenue overall in the first few (around 5) years in office instead of larger revenue in the first couple years.