Local Determinants of Economic Structure: Evidence from Land Quota Allocation in China
Abstract: China's economic structure stands in stark contrast to transitional countries and many developing countries at similar levels of economic development in its emphasis on industry and relative underdevelopment of the service sector. This distorted structure indicates that economic reforms require a shift in resource allocation among sectors of the economy. This paper focuses on land, a fundamental means of production, which remains under state and collective ownership more than three decades after economic reforms were launched. In the face of massive arable land loss, the central government imposed a land quota system that restricts the maximum amount of land used at the subnational level, but gives local governments enough autonomy to determine sectoral allocation of land quotas within their jurisdictions. What political economic factors drive sectoral allocation of land quotas in China? This paper argues that both the local revenue structure and the time horizon of local politicians have impacts on local land quota allocation. Using an original dataset for a probability sample of 120 cities, this paper finds that more land quotas are distributed to industry when the local revenue base relies more on the value-added tax and less on business tax, when local Party secretaries, but not mayors, have long time horizons, and when the locality is assigned more quotas.
