The impact of biased land resource allocation on local behaviour and subnational service provision: evidence from China

Land resources are crucial yet limited inputs in economic activities, with significant implications for both economic development and public sector behaviour. This study investigates how land resource supply affects local government actions, using the place-biased land supply policy (PBLP) introduced in 2004 as a quasi-natural experiment. Through a propensity score matching and difference-in-differences (PSM-DID) approach, this study finds that cities facing land supply restrictions under PBLP experienced slower GDP growth alongside higher pollutant emissions. These effects remain robust across alternative variable measures, accounting for other policies, and varying matching techniques. The slowdown in economic growth is primarily driven by reduced fixed assets and foreign investment, prompting local governments to relax environmental regulations to boost short-term growth. These findings highlight the unintended consequences of administrative land policies on social welfare, revealing the complex dynamics between land supply, government behaviour, and socio-economic outcomes.