| It is presently a key period for Chinese economy to transit from high-growth to high and medium growth, featuring speed shift, restructure and digestive period of previous policy. The Chinese GDP amounts to 5.69 trillion in 2013 and remains the second largest economy in the world. Meantime, the enormous size of the economy causes supplying shortage of production factors. Theoretically, land, as a production input, is closely connected with every parts of economic activities. Accompanying the high economic growth, evaluation of land value is a vital part of GDP. As estimated, the contribution of the land to economic growths increases from 13.93 percents during 1992-2000 to 26.07 percents during 2001-2009, the total land grant premium is 2.9 trillion in 2010. Since the land supply determines resource allocation across industries and cities, it plays an important role in industry distribution and economic development.The land allocation institutions witnessed a complicated historic process in China. After the reformation and open-up in 1978, the market mechanism to allocate land resource gradually comes into being. The government optimize the land use through charging the expatriation fee and land grant premium, which is the core pillar of the system. Especially after the management of land revenue is established in 2007, all the land revenue need to turn over to the state treasury and be included in fund budget of local government, according to the provision of" Separation between revenue and expenditure ". In addition, the marketization of land resource allocation is deepened. Meanwhile, the housing sector witnessed several rounds of encouragement and restriction and remain considerably stable over the past decades.The first aim of the research is to empirically evaluate the impact of land allocation on the economy during the booming of the housing sector from the perspectives of manufacturing firm, regions and local governments. The second aim is to build a structure model with links between regions and industries and evaluate the effects of land allocations on GDP and social welfares.The rapid development in the housing sector and skyrocketing of land and house prices lead to the relative price change between manufacturing and housing, and then induce the mobility of capital and labors across sectors and regions. The land allocation to housing sector has two effects for manufacturing firms. Firstly, manufacturing firms are attracted to invest in housing sector, which is termed as "hollowing out" effect. Secondly, the regional difference in land prices drives manufacturing firms to relocate, which is terms as "ranking" effect. The enormous growth in housing prices and land prices lead to the relative price change between housing sector and manufacturing. So the booming in housing sector and its high return might attract investment from manufacturing sector, which is supposed to invest in manufacturing sector, and the "hollow out" happens. Based on the data of listed companies in manufacturing sector, the research finds that, the return to asset for primary business is positively linked to the investment in real estates, no matter the current, three-year averaged or one-period lagged measures of the return to asset for primary business is adopted. The listed companies in manufacturing sector with short history tend to be distracted by the high expected return in housing sector, while those with longer history (company age greater than 10 years) invest less in real estates, probably due to its mature profit model.Based on the researches about spatial locations of heterogeneous firms, the empirical analyses confirm the existence of ranking effect, e.g. the increased land prices might drive low-efficient firms to relocate at places with lower land prices. The coefficients for average grant price of industrial land in the cities on which the subsidiaries are located, are positive with statically significance. This means that the total factor productivity (TFP) increases 0.012% if average grant price of industrial land in the cities on which the subsidiaries are located, increase 10 thousand Yuan. The ranking effect for average grant price of industrial land among subsidiaries adds gradually from the first year to the third year, but vanishes after the fourth year.The land policy and land price might force the transforming and upgrading of sectors. If tight policy of land grant and higher land prices are adopted, the profitability in sectors with low land efficiency will decline and the production factors will transfer to other sectors with high land efficiency. But if less restrictive land policy is implemented, the mechanism to force firms upgrading will lose its grounds. We will empirical test the forcing role of land policy, using city-level data.Based on the fact that land as an important input plays a key role in industry production, the research discusses if the climbing land cost drives the industry transformation and upgrading. The research finds that the driving effect by market forces dominates that by government policies. Specifically, the growth in labor cost hinders the development of the second sector but boost the development of the tertiary sector, while the environmental regulation and land constraint implemented by government are too loose to effectively drive the transformation and upgrading of industries.The revenue from land resource becomes an important part of local governments’ revenue and "land finance" is a key problem for economy development in China. Fiscal centralization after tax-sharing reform in 1994 helps formation of land finance, while local governments exploit land resource to fill the fiscal gap due to mismatch between fiscal resource and expenditure responsibilities. We test both the role of land prices of three categories (e.g. land for residential, commercial and industrial purposes) on land finance and the distortion effect of land finance on tax structure.Land finance has become one of the urgent problems in the economy transition. The tax-sharing reform and its consequent fiscal centralization laid down the institutional base for land finance. One motive of local governments for land finance is to keep fiscal balance. The research on the role of various kinds of land on land finance shows that, the land finance dependence stay at considerably high level and fluctuated across years during 2007-2013. Land price helps to enhance the land finance dependence. In general, the industry land price contributes most to the land finance, then residential land price and commercial land price. Land price easily boosts the land finance dependence during the period of active investment in real estates in 2007 and 2010, while it loses its momentum to the land finance dependence during declining period of investment in real estates in 2011 and 2013. The land finance dependence arises in the coastal area mainly owning to increased residential land price, while they arise in the middle and western areas mainly owning to increased industry land price.Regarding the land finance on tax structure, the research finds that the ratio of land grant premium to GDP virtually impacts the ration of total local tax revenue to GDP and the ration of corporate income tax, but the effects are negligible in term of economic magnitude. Meanwhile, its effects on the ratio of sales tax to GDP, the ratio of value added tax to GDP and the ration of personal income tax to GDP are statistically insignificant. This indicates that the "land sales for tax" does not work very well. The analysis in the period of declining investment in real estate indicates that, the tax burden goes up when the land finance dependence drops. The rigidity of fiscal expenditure the distortion of previous land finance dependence on the ensuing tax structure.Moreover, the reduced-form model merely the relationship of variables under equilibrium, while the structure model can describe the process to reach new equilibrium when land prices drops. We build a model with multiple sectors and regions to discuss the general equilibrium effect of land allocation. Under the model, inputs are categorized into land, which can transfer across sectors but not regions, and labor, which can transfer both across sectors and regions.Using the spatial equilibrium model with sectors and areas, the research explore three channels through which the falling land price affect social welfare. Firstly, the TFP in sectors arising from the sagging land price affect the consumption-weighted national TFP. Secondly, The falling land price increases the share of labor cost in the input bundle. Finally, the falling land price and corresponding TFP change in sectors affects return of national wealth portfolio and individual real income, and then consequently affects social welfare.This research contributes to the extant literature in four aspects. Firstly, we illuminate the mechanism of "hollow-out" effect and spatial ranking effect for enlisted manufacturing firms, which fills the void that no direct evidences at frim level have been provided on "hollow out" effect and spatial ranking effect. Secondly, taking land as an important input, we investigate the disciplining effect of rising input costs such as land on upgrading and transforming of manufacturing sectors. Thirdly, we explore the roles of three categories of land in land finance, which improves the knowledge of the "land for tax" mechanism. Furthermore, we evaluate the impact of land finance on tax bearing of economic agents. Finally, we build an spatial equilibrium model with region and sector linkage, and then analyze how land allocation affects GDP and social welfare.
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