Environmental regulation and land resource allocation in China: Empirical evidence from micro-level land transaction data

Abstract

Land resource allocation is closely related to economic activities, which can be affected by environmental regulation. Exploiting the variation in regulation intensity coming from the new Environmental Protection Law (EPL) across time, regions, and industries, we construct a difference-in-difference-in-differences (DDD) model to investigate the impact of environmental regulation on land resource allocation in China. We find that when faced with stringent environmental regulation, local governments are inclined to reduce land supply for polluting industries, which is robust using alternative specifications. Besides, local governments raise the price and the average size of land parcels sold to polluting firms, along with remote land locations and low land quality. Further evidence indicates that local officials, with fewer promotion incentives, tend to reduce land supply for polluting industries substantially, whereas they are more likely to increase land supply for polluting industries under increased economic growth (fiscal) pressure. This study reveals that environmental regulation can direct local land resource allocation towards a green path. Local governments can employ land supply tools to implement environmental governance.