The hidden cost of uncertainty: How policy instability delays industrial land development in Shanghai, China

This study examines how economic and political policy uncertainty influences industrial land development delays, focusing on Shanghai, a city with a highly decentralized land market and frequent institutional innovations. The analysis adopts the real option framework to treat vacant land as an option to develop. Policy uncertainty is measured over a continuous period and classified into economic policy uncertainty (EPU) at the national level and political turnovers at the regional level. Using a dataset of 1794 industrial land parcels transacted between 2008 and 2018 across nine districts in Shanghai, we apply empirical models to examine how policy uncertainty affects the land development timing. The findings indicate that delays are not necessarily linked to changes in political officials but are significantly influenced by disruptions in political continuity. Further analysis reveals that state-owned enterprises (SOEs) and land parcels within industrial zones are more resilient to economic policy uncertainty, while the negative effect of political instability is generally homogenous. These results highlight the hidden costs of policy uncertainty in industrial land markets and offer insights for improving land development governance. • Industrial land development delays in response to economic policy uncertainty (EPU). • Development delays are linked to political discontinuity, not leadership changes. • The impact of EPU varies across ownership structures and land locations. • The negative effect of political instability is generally homogenous.