Drinking Poison to Quench Thirst: Local Government Land Financial Dependence and Urban Innovation Quality

Round 1

Reviewer 1 Report

Comments to the Authors

General comment

The paper addresses a very relevant question, in the Chinese context, but also more broadly: to what extent the dependence of local authorities on funding from land use concessions/licences hampers innovation in the economy of these same cities. The empirical methodology is sound, but the theoretical framework and the presentation of the reality/context to which the study refers should be improved. Remember that this is not an economy magazine, nor is it an Asian journal, where in principle readers will be more easily familiarised with the Chinese context.

1.Relationship between LGLFD and UIQ

There is no explanation as to why the hypothesis that there may be a tendency for LGLFD to have a greater weight in places where the propensity for innovation is lower was not considered. It is known that there is a tendency for innovation to be concentrated in certain locations, in order to take advantage of agglomeration economies (Stiglitz, 1989, p. 199, apud Dawkins, 2003, p. 151). Thus, it is natural that in places where there is less innovation, local authorities will rely more on revenues obtained not directly from entrepreneurial business activity, because these will be lower than in places where there is more innovation.

Another possible reason is that in the early stages of the growth and development processes of industry and services, there tends to be a higher rate of expansion of infrastructural space, because these activities were previously non-existent or very small.

Conversely, in already developed areas (where innovative activities are usually concentrated), the renewal of activities may often not involve new infrastructure or the creation of new industrial or urban spaces, which is why there is less revenue from land concessions.

These hypotheses may help to explain why in the regional heterogeneity test (4.5.1) the negative effect of LGLFD on UIQ is not significant in the Midwest sample and in the East sample.

So it can happen that the empirical model used correctly describes the existence of a relationship between LGLFD and UIQ, but not the sense of causality between these two terms. In other words: what causes what? Does the LGLFD cause the lower UIQ? Or does the lower UIQ lead to the higher LGLFD?

The question of the meaning of causality also arises when interpreting some of the results of the various tests of the empirical model.

Reference

Dawkins, Casey J. (2003), “Regional Development Theory: Conceptual Foundations, Classic Works, and Recent Developments”. Journal of Planning Literature, Vol. 18, No.2 (November 2003), pp. 131-172. DOI: 10.1177/0885412203254706.

2. Theoretical framework

It would be useful if there were a few paragraphs in which the theoretical framework of the relationship between LGLFD and UIQ was explained more clearly. The presentation of the theoretical framework in the introduction is sometimes oversimplified, with the assertion of relationships that are not obvious, even though some authors may defend them.

The authors themselves recognise (p. 2) that, "As the above studies show, there is no consistent conclusion regarding the impact of LGLFD on innovation".

Therefore, the presentation of the various positions invoked, and the studies that support them, should be more nuanced, in the sense of not presenting these ideas as if they were established facts. This could just be a wording problem that the authors/translators could easily solve.

For instance,

Lines 44-45

"To achieve the expected economic growth, local governments obtain fiscal revenue by earning land grant spreads"

It is not clear whether local governments have the expectation, well-founded or not, that their tax revenue will generate economic development. If so, how? Or if it is a position that the authors defend, based on the references they use.

In addition, a definition of UIQ should be provided at the outset (in the introduction). In fact, the index chosen to operationalise this concept in the empirical model (3.2.1 Dependent Variable) shows that the authors have a good understanding of the issue of innovation and the problems associated with measuring it. On the other hand, the designation "Urban Innovation Quality" has no advantage over the simpler "Inovation Quality". Although innovation usually takes place in an urban context, sometimes this may not be the case.

3. General background

Many English-speaking readers are unfamiliar with China's tax system and the territorial organisation of this large country. Although this is occasionally clarified throughout the text, it would be useful if there were a few paragraphs on these topics at the beginning, to enable those unfamiliar with the Chinese reality to get their bearings straight away. For example, it would be useful to have a few lines on "the tax-sharing reform" and "the 'GDP Championship'" in China. 

As it stands, the beginning of the text does not make it clear what is being discussed.

Consider reducing the introduction and adding a theoretical framework section with some context about the reality in China.

4. Conclusions and Policy Implications

The conclusions might need to be reconsidered in the light of comment 1 on the direction of causality in the model.

In any case, the conclusions and their theoretical implications should be discussed. 

On the other hand, the policy recommendations should be better justified. Remember, many readers of this journal don't know what you're referring to, because they don't know what taxation systems are like in China.

Besides, to "increase spending on science and technology innovation, deepen financial market reform, and provide better financial support for enterprises' innovative production activities" are very general recommendations, which could be suitable for many contexts.

Specific questions

p. 2

Lines 84 to 92

The introduction is not the right place to present the study's conclusions.

Lines 127-128

Why “the use of local government revenues for infrastructure construction further increases housing prices”?

Lines 149-150

See words repeated.

Lines 165-166

“the continuous improvement of infrastructure have increased real estate prices”. Please explain why.

Lines 182-184

The reasoning is not clear. Companies in general tend to try to influence the behaviour of governments in order to obtain rents.

Lines 184-202

The whole argument up to the end of the paragraph is confused.

Lines 257-258

The territorial organisation in China and its recent changes that are relevant to this study should have been explained at the beginning of the article.

Line 267

Is it "variables"?

Lines 295-299

It is not clear what the lag considered / applied is.

Lines 411-412

Lines 411-412

How do you know it's not the other way round? In small towns, the UIQ is usually lower; therefore, the impact of the LGLFD is also lower.

Line 430

"LGLFD has improved the regional economy"

Provide a brief explanation of how/why

Comments for author File: Comments.pdf

The quality of the English is reasonable. There are repetitions and poorly formulated sentences. Consider asking a native speaker to proofread the final text.

Author Response

The author's response to the reviewer's comments is attached.

Author Response File: Author Response.pdf

Reviewer 2 Report

The authors address the issue of Local government land finance dependence (LGLFD) thru series of regression models. And the regional heteroscedastity problem had been modified. Furthermore, the authors adopted the lagged variables in the regression to include the lag effect of LGLFD problem. However, some time series approaches, such as AR(n) or MA(n), were not adopted in the regression. Meanwhile, the units of measerment for all the variables were not cited in Table 1 so as to make it difficult to read all the meanings of these regressions. In addition, other functional forms, such as log-linear, or Box-Cox non-linear form was not tested in the regression. As a result, most of the regression models have low R square values. All in all, I would like to suggest the authors that first, Table 1 should include the meanings and the units of measurement for all the variables. Second, at least one of the other functional forms, such as time series, log-linear, and Box-Cox functions, should be tested in the regression analysis.  

Author Response

The author's response to the reviewer's comments is attached.

Author Response File: Author Response.pdf

Reviewer 3 Report

The paper proposes an analysis focused on the relationship between local government land finance dependence (LGLFD) and urban innovation quality (UIQ). In particular, the authors examine 3,662 samples from 264 Chinese cities from 2003-2016 proposing some policy implications.

The paper is interesting, and the results confirm the hypotheses. In the following some suggestions are proposed to improve the readability and the quality of the paper:

 ·      Lines 85-92: The authors declare that they have used 3,662 samples from 264 Chines cities. They also say that these cities belong to eastern, central and western regions of China, and they have faced with small and big cities, central and peripheral ones.

To improve the understanding of the analysis and the results also for non-Chinese readers, it would be useful to include a map identifying the eastern, central and western parts of China with the location of the cities in these areas, even if only showing a density scheme for each area as it is difficult to include 264 cities in a small map. It is useful also to insert a table in which is shown the number of cities per area, the number of large and small cities per area, and the number of central and peripheral cities per area. Because in Table 5 the authors have inserted these types of items, it is useful to have this information by the beginning.

·      Line 85: In relation to the 3,662 samples used, the authors can specify which type of elements belong to the samples, highlighting the number of cases for each category.

English is good. Check typos.

Author Response

The author's response to the reviewer's comments is attached.

Author Response File: Author Response.pdf

Round 2

Reviewer 1 Report

You have carried out a substantial revision, which has addressed the most important issues raised in the first review. I therefore think that the article is now suitable for publication.

There are still minor issues regarding the quality of the English, which can be addressed by Land's editorial services. 

Author Response

Thank you for your work!

Reviewer 2 Report

The new model that is shown on the column 7 of Table 4 has much higher R square value than the previous one. According to the revision, this new model seems to be a semi-log model, i.e., logrithm on the dependent variable. Would that be possible for the authors to provide a double-log model, i.e., logrithm on both hand sides, for comparison? And the authors should discuss the possible reason behind the huge diffenece in R squares between the simple linear and the semi-log linear model.

Author Response

Please see the attachment.

Author Response File: Author Response.pdf

Reviewer 3 Report

The authors have taken into account my suggestions. I do not have any additional comments.

English is good. Check typos.

Author Response

Thank you for your work!