We study the effect of China’s inland-favoring land policy on firm-level productivity by employing a research design combining difference-in-differences and regression discontinuity at the policy border. We find that the inland-favoring land policy decreased the firm productivity gap between developed (eastern) regions and underdeveloped (inland) regions. The relative changes are mainly due to slower eastern firm productivity growth rather than faster inland firm productivity growth. Eastern firms reduced their R&D expenditure and capital usage as a response to the policy.

Developing countries are characterized by frictions that impede the mobility of workers across occupations and space. We disentangle the role of insecure property rights from other labor mobility frictions for the reallocation of labor from agriculture to non-agriculture and from rural to urban areas. We combine rich household and individual-level panel data from China and an equilibrium quantitative framework that features the sorting of workers across locations and occupations. We explicitly model the farming household and the endogenous decisions of who operates the family farm and who potentially migrates, capturing an additional channel of selection within the household. We find that land insecurity has substantial negative effects on agricultural productivity and structural change, raising the share of households operating farms by almost 30 percentage points and depressing agricultural productivity by more than 10 percent. Quantitatively, land insecurity is as important as all other labor mobility frictions. We measure a sharp reduction in overall labor mobility barriers over 2004-2018 in the Chinese economy, all of which can be accounted for by improved land security, consistent with reforms covering rural land in China during the period.