Literature overview
The topic of land finance garnered significant attention within global academic circles, as prior literature delved into its determinants and effects on regions and cities (Peneder, 2003; Ye and Wang, 2013; Rithmire, 2017). Regarding the repercussions of land finance, critics contend that excessive reliance on this approach could result in farmland appropriation, intergenerational and regional disparities, potential real estate bubbles, corruption, fragmented urban planning, and societal instability (Ma et al. 2024; Huang and Chan, 2018). Conversely, other scholars posited that land finance offers an innovative avenue for promptly generating income, amassing requisite infrastructure investment, and fostering rapid capital accumulation with a high reinvestment rate (Lu et al. 2020). Ex-ante studies summarized the impact of land financial incentives on local government behavior, including land expropriation, infrastructure construction, and attracting investment (Fan and Zhang, 2020; Medda, 2012). Land finance exerted substantial spatial spillover effects on the behavior of regional economic development (Fan and Zhang, 2020). Governments endeavored to attain optimal economic and political competitive advantages, consequently reaping rewards within the context of the promotion tournament. In addition, capital entering land economic production showed substantial benefits for regional integration (Hjaltadóttir et al. 2020). Therefore, the Chinese government had prompted a series of strategies to promote regional integration. Central to the factors influencing regional integration are industrial relocation (Wang and Shao, 2025), economic advancement (Chen et al., 2023), and pertinent plans (Guo et al. 2025). Concerning land finance affecting REI, most studies were carried out indirectly, with numerous researchers incorporating additional dependent variables associated with REI in their empirical analyses. These variables encompassed urban sprawl (Liu et al. 2016), industrial structure (Wang et al. 2021), economic correlation intensity (Hu and Qian, 2017), and infrastructure connectivity (Garmendia et al. 2012).
Scholars have extensively investigated the influence of financial development on regional economic integration. Authorities often promote regional integration by enhancing infrastructure development, which requires substantial capital investment (Nawaz and Mangla, 2021). As a result, local revenue remains stable, while expenditures experience a significant increase in regional synergy. Fujita and Krugman (2004) examined the dynamic evolutionary changes in regional integration within Russia and investigated its potential determinants. They identified a strong negative correlation between internal economic integration and the degree of financial openness to international trade. Chen et al. (2023) discovered that the regional financial situation within urban agglomerations significantly affected China’s regional integration.
Concerning land finance affecting regional economic integration, the majority of studies have been carried out indirectly, with numerous researchers incorporating additional dependent variables associated with regional economic integration in their empirical analyses. These variables encompassed urban sprawl (Liu et al. 2016), industrial structure (Wang et al. 2021), economic correlation intensity, and infrastructure connectivity (Garmendia et al. 2012). Combes (2011) discovered that local governments tended to overallocate land resources to urban infrastructure construction, while providing an insufficient supply for human capital and public services. This imbalance contributed to the swift expansion of urban land. Simultaneously, land finance significantly boosts the supply capacity of transportation infrastructure through compensatory mechanisms, thereby facilitating the reduction of financial gaps. These pathways were anticipated to serve as conduits for fostering urban agglomerations. Land finance was likely to shorten the commuting time between two cities of urban agglomerations by improving urban transportation infrastructure, which has been substantiated by empirical studies (Chen et al. 2024; Zhang et al. 2025). Nevertheless, the connections between land finance and the development of urban agglomerations continued to be enigmatic. Some scholars have identified diverse patterns, encompassing U-type, inverted U-type, and inverted N-type configurations (Chen et al. 2023).
While the economic implications of land finance have gained substantial recognition among international scholars, a notable deficiency persisted in conducting exhaustive and precise research concerning its effects on regional economic integration that considered temporal, spatial, and scaling aspects. To understand the government’s measures and clarify the underlying logic of regional development, additional insights are needed into the relationship between these two variables.
A theoretical framework of multiple roles of land finance on REI
As highlighted in the aforementioned insights, REI was driven by land finance through mechanisms of capital accumulation, efficiency circuits, and governance. Consequently, we propose a theoretical framework that examines the multiple roles of land finance on REI from temporal, spatial, and scaling perspectives (Fig. 2). Subsequent sections will provide a detailed elaboration of these effects.
Multiple roles of land finance on REI.
Temporal effect
Land finance functioned as a pivotal source of extrabudgetary revenue, with its statistical attributes directly linked to the production efficiency of urban construction within cities (Graham, 2007; Chen et al. 2024). Empirical evidence indicated that during the initial stages of land finance, pressure incentives outweighed investment competition. During this period, the impact of land finance on REI was positive, manifesting in two primary ways. Firstly, through traditional territorial management, land finance emerged as a crucial method for bridging the growing fiscal gap resulting from REI efforts (Mittal, 2014). Secondly, significant changes in land finance altered production spaces and substantially increased land values in neighboring areas (El-Nagdy et al. 2018; Zhou and Lin, 2025). This led industries to concentrate in specific areas to reduce cross-regional communication costs. The concentration of production facilitated both horizontal and vertical labor division, resulting in economies of scale within economic agglomerations.
However, this process also introduced a paradox: while agglomeration economies initially offered benefits, they eventually led to agglomeration diseconomies due to spatial production competition. For example, the marginal benefits of infrastructure incentives on REI may have started to decline during the land finance boom, leading to disorderly urban expansion, industrial homogenization, and production competition (Ma et al. 2024; Glaeser et al. 2017). In 2014, China introduced the New-Type Urbanization Plan, which emphasized people-centered development and aimed to reduce local governments’ excessive reliance on land finance (Guo and Shi, 2018). Measures included constraining land supply quotas, curbing housing speculation, and limiting land use for collateral loans (Zhang, 2017; Zhang et al. 2025). This reduction in land finance increased the burden on local governments and decreased net revenue during the transitional phase (Tang et al. 2019; Gyourko et al. 2022), thereby altering the impact of land finance on REI. In summary, the effects of land finance on REI likely varied across different stages.
Spatial effect
The supply of urban land across different cities was interconnected, and the competitive strategies of local governments often led to spatial imitation or substitution effects in land finance approaches (Perez-Moreno, 2024). This interconnectedness highlighted how changes in land finance scales in neighboring cities could impact REI levels in a given city. Firstly, government authorities, driven by political motivations to enhance their standing (Wang and Hou, 2021; Guo et al. 2025), increased their intervention in high-value land transfers to secure financial and political advancement. This created a race-to-the-top competition, with traditional industries and urban infrastructure development becoming focal points for rapid wealth accumulation, particularly under intergovernmental competition (Chen et al. 2020; Zhang et al. 2025). Such competition significantly influenced REI. Local governments, aiming to boost fiscal revenue and address budget shortfalls, competed to raise land transfer prices (Brandt et al. 2017; Zhang et al. 2025). Industries unable to afford high land costs relocated to neighboring cities with lower prices due to this competitive environment. The departure of low-value-added industries from original cities paved the way for the dominance of technology-intensive and strategically emerging industries, thereby accelerating industrial spatial transfer, technical information exchange, and overall industrial integration.
Secondly, motivated by economic ranking incentives, local governments adjusted land supply structures in response to investment competition (Peterson, 2008; Zheng et al. 2025). As competition intensified, local governments were more inclined to offer land at reduced prices to attract investment. This often led to aggressive competition over industrial land transfer prices and a spatial imitation effect in land investment strategies among cities (Mittal, 2014; Huang and Zhang, 2016). Conversely, a spatial substitution effect emerged due to the interaction between land and capital, impacting the relative economic advantages of cities and influencing REI. In conclusion, we posited that land finance could have a spatial impact on REI.
Scaling effect
Due to variations in political status, geographical location, resource endowment, and economic development, Chinese cities exhibited diverse scales, ranks, and magnitudes of land finance (Chen et al. 2023). High-ranking cities, endowed with abundant revenue streams and economic prowess, demonstrated a preference for efficient and intensive land utilization within their limited land resource quotas (Han and Lu, 2017). This approach allowed these cities to focus on advanced industrial development to achieve substantial economic gains, reducing their reliance on land finance while still supporting the advancement of REI.
In contrast, lower-ranked cities with less developed economic statuses faced limitations in financial revenue sources. These cities often struggled with local debt management and fund allocation efficiency, despite having relatively ample land supply. Consequently, they tended to employ inefficient and extensive land conversion strategies in their efforts to stimulate REI (Huang and Zhang, 2016; Mo, 2018). The complex debt structures and interconnected debt chains associated with land finance in these cities could potentially serve as conduits for the spread of regional financial risks, thereby impeding the development of regional economic linkages and integration processes. In summary, our proposition suggested that the impact of land finance on REI varies significantly across cities of different levels and scales.