The Effect of Housing Price on Industrial Agglomeration in China

Based on the panel data of 268 prefecture-level cities in China during 2001-2007, this paper examines the impact of housing price on the agglomeration of manufacturing industries in China. Using instrumental variable method to alleviate the endogeneity problem, after controlling for a series of city characteristic variables, the IV regression results show that: the housing price has a significant negative impact on the manufacturing agglomeration. Further studies show that the negative effect mainly comes from the eastern region after 2003 when China’s land policy has changed greatly. For the central and western regions, the housing price has no significant effect on the agglomeration.