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Title: The Costs of Political Manipulation of Factor Markets in China

Author(s): Vernon Henderson, Dongling Su, Qinghua Zhang and Siqi Zheng

Publication Date: September 2020

Keyword(s):

Programme Area(s): International Trade and Regional Economics

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.

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Bibliographic Reference

Henderson, V, Su, D, Zhang, Q and Zheng, S. 2020. 'The Costs of Political Manipulation of Factor Markets in China'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15247