Land marketization and urban innovation capability: Evidence from China

The economic effect of land marketization reform has been widely discussed, but its effect on urban innovation capability still lacks adequate investigation. Based on urban panel data and micro-industrial enterprise data of China, we investigated how land marketization affects urban innovation capability. Our results demonstrate that land marketization has promoted urban innovation capability, and the effect presents temporal and spatial heterogeneity. The results remain robust when considering different marketization measurement methods and endogenous problems. Mechanism analysis indicates that land marketization promotes urban innovation capability mainly through the financing and selection effects; that is, land marketization eases urban financing constraints and then increases innovation investment (financing effect), while enterprises are forced to innovate to survive in a competitive land market (selection effect). An effective way to stimulate urban innovation capability would be to establish and improve land market competition and market transaction mechanisms. For China, further deepening the market-oriented reform of land factors is the crux of realizing high-quality development.