The causal relationship between land urbanization quality and economic growth: evidence from capital cities in China

The study of the relationship between economic development and land urbanization is significant not only for China but also for other developing countries. This paper investigates the causal relationship between land urbanization quality and economic growth in China on a regional level in order to explore such relationship. Panel data from 2003 to 2012 of 35 major cities were employed in the analysis. According to the Seventh Five-Year Plan, we divided these cities into three groups, namely, Eastern China, Central China and Western China, based on their geographic position and economic development. By using the VECM methodology, panel fully modified ordinary least square and the Granger method; we intend to highlight the type of causality between land urbanization quality and economic growth. The empirical results show that (1) long-run causality from land urbanization quality to economic growth exists on a national scale, with the largest effects observed in the Western region, followed by the Central region, and the Eastern region, which is ranked last; (2) economic growth positively affects land urbanization quality, although this effect diminishes over time in all three regions; and (3) mutual short-run causality is found in all regions, in addition to Central China. This study placed more emphasis on the quality and efficiency of land use in urban areas. Furthermore, we propose that the transformation of the local government’s performance evaluation mechanism, inter-regional coordination, and cross-regional operation can contribute to land urbanization quality and that, more importantly, Central China is the region that requires the greatest policy support from the government.