Land regulations, innovation and productivity: Firm‐level evidence from China

Abstract In this paper, we study how land policy reform affects firm innovation and productivity in China. More specifically, we focus on the impact of the land regulations that controlled the quotas of land supply introduced in 2004. We find that land regulations promote firm innovation but inhibit firm productivity. The regulations constitute land input constraints for firms and make them more difficult in expanding production capacity to fully exploit economies of scale, meanwhile they push firms to invest in innovation to alleviate the adverse effects. It is also found that resource allocation efficiency is deteriorated and aggregate productivity is decreased in the post‐land‐regulation period. Moreover, the effects of land regulations on firm performance are stronger for non‐state‐owned enterprises and industries with a lower level of market competitiveness.