From market access to effective land markets: Institutional design and development in counties

Understanding how market access translates into effective marketization is important for uncovering the mechanisms through which land institutional reform promotes rural development. Existing studies have largely focused on whether opening land markets generates economic effects, but have not systematically identified the quantitative relationship between local variation in policy implementation and reform outcomes. This paper asks: once rural land is granted formal market access, what institutional arrangements can translate that formal access into effective marketization and generate local development gains? Using the Rural Collective Construction Land Marketization Reform in China, we hand-construct a database of local land-market institutions. We identify the role of local institutional design along four dimensions: the boundaries of land supply, competitive transactions and price formation, land organization and the allocation of decision-making rights, and the distribution of land-value appreciation proceeds. We find that, first, the key to marketization is not merely removing legal barriers to transactions, but whether reform simultaneously creates a sufficiently elastic effective supply of land and a competitive price-discovery mechanism. Second, rural land markets require institutional capacity to “create and sustain markets,” rather than substituting centralized organization for market choice. Third, whether land markets can operate on a sustained basis depends on whether the distribution of returns is incentive compatible; that is, whether the land-value appreciation proceeds created by the market can be distributed in a transparent and predictable manner that sustains the participation incentives of governments, collectives, and their members. These findings provide new insights for deepening land marketization reform.