Homestead reduction, economic agglomeration and rural economic development: evidence from Shanghai, China

Purpose The contradiction of construction land in economically developed regions is becoming more prominent, and the scale of construction land in some large cities is close to the ceiling. Therefore, China implemented the policy of construction land reduction in 2014. The main objective is to optimize the stock of homesteads and then help to realize rural revitalization by transferring land indexes across regions. Shanghai took the lead in implementing the reduction policy in 2014, for which reduction acceptance data are available. Thus, this paper evaluates the impact of homestead reduction on rural economic development based on data from towns in Shanghai. Design/methodology/approach This paper uses the difference-in-difference (DID) model to analyze the policy effects of homestead reduction on rural residents' income and industrial integration development. Using economic agglomeration (EA) as a mediating variable, the authors explore how homestead reduction (HR) promotes EA to drive rural economic development and analyze the impact of geographic location and government investment. Findings HR significantly promotes rural economic development and shows a significant cumulative effect. In the long run, HR can improve rural residents' income and promote industrial integration by promoting EA. The positive effect of HR and EA in suburban regions on industrial integration development is gradually increasing. However, the incentive effect on rural residents' income is weakening. The positive mediating effect of EA is significantly higher in regions with low government investment than in regions with high government investment. Originality/value This paper contributes to testing the impact of HR policy on rural economic development and can provide a reference for other regions aiming to implement reduction policy.