Understanding the Impact of Land Supply Structure on Low Consumption: Empirical Evidence from China

Abstract

In studies of low consumption in China, there is a lack of consideration of land policy, which may be an important factor contributing to the industrial structure, thus impacting consumption. This paper explores the relationship between local governments’ distorted land supply strategies and final consumption and its mechanism of action based on panel data for 31 provinces in China from 2002 to 2017, using a fixed-effects panel model and a mediating-effects model. The results show that (1) the ratio of industrial land supply area to the land supply area of commercial and residential significantly suppresses the final consumption rate, and the results remain significant after robustness tests; (2) the effect of land supply structure on final consumption is related to the development strategy adopted by local governments and the urban–rural inequity, thus showing heterogeneity, with regions with high economic growth and large urban–rural income gaps further contributing to the suppression of consumption rates; (3) the intermediation effect suggests that the structure of land supply affects consumption through the industrial structure. As land supply favors the development of industrial enterprises, it increases the ratio of gross capital formation to GDP and can have a crowding-out effect on the income of the household sector, thus reducing the rate of final consumption. Under the Chinese decentralization system, in order to achieve regional economic development, local governments intervene in the allocation of land resources among different industries through differentiated land supply strategies, resulting in an industrial structure dominated by the secondary industry, which has an important impact on consumption. Therefore, the reform of the land supply structure should be accelerated to restrain the excessive intervention of local governments in the land supply structure and promote the transformation of the economic development model to enhance consumption.