Industrial Policy and Growth : Micro-Econometric Evidence from the Chinese Land Market

Using a sample of one million land transactions in China from 2006 to 2013, I find that the average price of publicly auctioned residential land is nine times higher than the price of adjacent local government-designated industrial land. An industry in a city receiving greater industrial land subsidies enjoys a higher growth of output, capital, and labor but lower productivity. My results are robust to instrumental variable estimations based on local governments’ bond issuance quotas. Further micro-level evidence, including land purchase determinants, firm performance after the land deal, and leader characteristics’ effects, supports a local leader-firm reciprocity mechanism