The regional house prices in China: Ripple effect or differentiation

The paper aims to investigate the ripple effect of house prices between 35 metropolitans in China, using a coefficient heterogeneity model with Panel Data and VAR model. The metropolitans are divided into panels by spatial location and regional economic level. The empirical results show that prices in most regions are generally consistent with the national average, but they have different responses to changes in national fundamentals. Particularly, there is a clear differentiation in North China and East China from other regions, as well as the region of a higher level economic development. Furthermore, the findings from Granger test and impulse response function with VAR model indicate that those regions are the source where a ripple effect is from. And the diffusion path is very clear between economic regions. This study has provided a better understanding of the formation and transmission of the ripple effect of house prices across regions and also important implications for central and local governments over market changes.