Understanding the role of government in regional industrial evolution: Evidence from land supply in China

Abstract

In the process of regional industrial evolution, the role of government in fiscal and administrative aspects has gradually gained attention in recent years. However, there is still a lack of discussion on how government land supply shapes industrial evolution. Using land-industry data from 2007 to 2013 in China, we find that the government has been deeply involved in the development of various unrelated industries through land pricing authority, a phenomenon that remains robust after addressing endogeneity concerns. Unlike the literature focusing on China’s early industrial evolution, during the period of large-scale relocations of industries to inland regions, our results reveal that government subsidies have minimal impact, whereas initiatives to establish development zones yield significant returns. Besides, differences in the ability of governments to affect industrial evolution through land use are identified, revealing disparities across industry attributes and geographical features. Further analysis suggests that the rise in firms’ average debt ratio and local governments’ budgetary revenue are potential channels in this process, while the trade-off is an increase in corruption. In sum, we revisit and extend the significant role played by the government in regional industrial evolution. This may offer novel insights into industry policy for countries with public land ownership or less developed industries.