In a groundbreaking study analyzing the decision-making patterns of local governments across 258 Chinese cities, researchers have uncovered compelling evidence of peer effects significantly shaping investments in new infrastructure initiatives (NII). This investigation delves into the complex interplay between internal learning, competition, and the influence of exogenous policy shocks that collectively drive an intricate web of imitative behaviors, ultimately impacting regional economic landscapes and sustainable development trajectories.
At the core of the analysis lies the concept of internal learning, revealing a striking pattern of path dependence within local government investment decisions. Instead of rectifying suboptimal past choices, local authorities tend to reinforce existing infrastructure investment trajectories, often perpetuating inefficiencies over time. This phenomenon mirrors foundational principles in behavioral economics, which highlight how historical decisions disproportionately frame subsequent strategies. The prevalence of indiscriminate investments—such as the overcapacity in data centers or the oversaturation of electric vehicle charging stations—underscores this entrenchment, where experience is misinterpreted as validation for continued irrational resource allocation. Consequently, this path-dependent inertia exacerbates regional disparities and magnifies systemic imbalances, suggesting the urgent need for mechanisms to recalibrate strategic infrastructure planning grounded in critical evaluation rather than mere replication of prior patterns.
Complementing the internal learning dynamic, the study illuminates a substantial external demonstration effect. Local governments frequently emulate infrastructure investments made by peer cities, particularly when confronted with uncertainty. This observational learning strategy serves as a risk mitigation tool, enabling authorities to navigate ambiguity by adopting seemingly successful models implemented elsewhere. Notably, this external imitation demonstrates marked regional heterogeneity: it is most pronounced in central and western China, regions characterized by comparatively limited fiscal and administrative resources. Here, horizontal learning remains a vital strategy to compensate for institutional constraints and to decipher opaque policy environments. In contrast, wealthier eastern cities, endowed with more robust fiscal capacities and policy autonomy, exhibit less reliance on peer imitation, reflecting their ability to formulate tailored, endogenous investment strategies.
The research further explores the multidimensional competitive pressures shaping local government behaviors in the NII domain. Three competition vectors—fiscal, talent, and industrial—emerge as significant drivers prompting cities to mirror peers’ infrastructure choices. Fiscal and talent competition is notably intensified outside the resource-rich eastern corridor, where localities vigorously jostle for finite financial resources and skilled human capital. This heightened sensitivity to peer actions underscores the differential developmental contexts shaping competitive incentives. Particularly revealing is the industrial competition effect in central China, where the imperative for rapid industrial upgrading motivates authorities to closely monitor and replicate successful infrastructure investments associated with cutting-edge industries like artificial intelligence and big data. Such imitation, while enabling cities to avoid falling behind, also risks fostering homogenized industrial landscapes by discouraging diversity and innovation, a cautionary note echoed in corporate sector analogs of green innovation adoption dynamics.
Interwoven with these endogenous mechanisms are exogenous policy shocks that amplify peer effects, reshaping the terrain of local government decision-making. National initiatives such as the New Infrastructure Development Plan (NBDP), the Broadband China Strategy (BCS), and the Smart City Pilot (SCP) program function as critical institutional interventions that catalyze imitation behaviors across the NII investment spectrum. However, their impacts are far from uniform, exhibiting significant regional disparities reflective of divergent development levels and institutional capacities. The NBDP’s influence is most vigorous in central and western regions, where uncertainty propels localities to emulate successful pilot models. This aligns with institutional theory’s assertion that organizations under ambiguity gravitate towards copying perceived best practices to reduce risk. Conversely, eastern cities, with better resources and autonomy, show minimal NBDP-driven imitation, instead prioritizing localized industrial priorities.
Similarly, the Broadband China Strategy stimulates peer effects at the national level, yet its potency varies substantially by region. While eastern cities lean on their established frameworks and investment experience, flavoring their approach with localized nuances, the strategy’s impact in western cities remains muted, potentially constrained by structural limitations or resource shortfalls. Central China emerges as a hotbed of vigorous imitation under the BCS umbrella, as local governments actively track and reproduce broadband expansions from pilot cities in efforts to remain competitive in fast-emerging technology sectors. Despite its strategic rationale, this replication process risks triggering overinvestment and wastefulness, as cities prioritize outdoing neighbors without sufficient alignment to local needs and capacities—a dynamic that highlights the complex interplay between competition and coordination necessities on a regional scale.
The Smart City Pilot program reveals a distinctive east-west divide in fostering peer effects. Nationally, its aggregate influence on imitation is modest, but regional analysis uncovers significant elevation in imitation activities within central and eastern cities. These local governments view the SCP’s smart urban initiatives as templates to reduce decision-making uncertainties, adopting pilot-city practices to accelerate modernization efforts. In stark contrast, western cities demonstrate little adoption impetus, primarily due to inherent economic and technical constraints, a reflection of the enduring digital divide that segregates these regions in terms of infrastructure, finances, and expertise. This divide exposes critical inequalities that potentially limit the ability of less developed areas to harness technological advancements and risk perpetuating a developmental chasm along the country’s east-west axis.
Underlying these broad patterns is an emergent theme of strategic imitation as a double-edged sword: while imitation can facilitate rapid catch-up, reduce uncertainty, and stimulate coordination under certain conditions, excessive or uncritical replication can engender systemic inefficiencies, resource misallocation, and stifled innovation. The interplay of local institutional frameworks, resource endowments, and policy environments shapes the delicate balance between healthy competition, cooperative learning, and detrimental homogeneity. Particularly in contexts with limited regional coordination mechanisms, rampant policy benchmarking risks industrial convergence and the erosion of ecosystem diversity, undermining long-term adaptive capacities critical to sustainable urban development.
The findings offer crucial insights for policymakers, suggesting the necessity of refined, regionally differentiated strategies that recognize heterogeneity in local capabilities and developmental stages. This recognition implies the importance of customizing national infrastructure policies to local contexts, mitigating the risk that one-size-fits-all interventions might exacerbate inefficiencies or deepen inequalities. For instance, policies fostering critical reflection in internal learning mechanisms or incentivizing innovative diversity in competitive behaviors may help break path-dependent cycles and mitigate the risks of homogenized infrastructure landscapes.
Moreover, these insights underscore the value of enhancing interregional coordination frameworks to moderate the potentially negative spillovers of peer-induced competition, encouraging tailored benchmarking rather than indiscriminate replication. Coordinated approaches might also alleviate resource waste stemming from duplicative investments in infrastructure assets misaligned with localized demand or capacity profiles. The strategic deployment of fiscal and human capital resources, paired with targeted capacity building in lagging regions, emerges as another pivotal policy lever to balance competition with collaboration, fostering a more equitable distribution of infrastructure development benefits across China’s diverse urban landscape.
This study’s rich empirical analysis situates peer effects within the broader theoretical landscape encompassing behavioral economics, institutional theory, and regional development economics. It highlights the intricate mechanisms through which learning and competitive dynamics co-evolve with overarching policy stimuli to shape local government infrastructure decisions. By dissecting the layered regional heterogeneity and pinpointing the variable responsiveness to exogenous shocks, the research provides a nuanced understanding of infrastructural investment patterns pivotal in charting China’s urban future.
In addition, the phenomenon of risk-averse imitation documented here parallels similar behaviors observed beyond the public sector, notably in corporate strategy where firms replicate green innovation under uncertainty. Such cross-sectoral analogies enrich the theoretical scaffolding underpinning peer effect analysis, extending its relevance across diverse institutional settings. However, they also raise cautionary flags regarding the systemic ramifications of imitative behaviors absent sufficient critical assessment or adaptive differentiation, a challenge confronting policymakers universally.
The clear regional divides identified—between the well-endowed eastern provinces and the resource-constrained central and western areas—reveal deep-seated disparities that complicate uniform policy enactment and highlight enduring structural stratifications in China’s urban development paradigm. Digital divides, fiscal resource variabilities, and administrative capacities distinctly shape each region’s susceptibility to peer influences and their strategic responses to national policy stimuli, thereby reinforcing the centrality of contextualized governance approaches.
Future research directions may explore interventions aimed at fostering adaptive learning frameworks within local governments, designed to enhance critical reflection on prior infrastructure investments and thereby reduce entrenched inefficiencies. Similarly, the optimal structuring of inter-city collaboration mechanisms to harness the benefits of peer effects while mitigating the risks of harmful competition warrants further empirical and theoretical attention. Greater interrogation of sector-specific dynamics, such as the role of emerging digital and green technologies in modulating peer effects, could also offer valuable insights to tailor infrastructure planning in an increasingly complex economic landscape.
Ultimately, this analysis pulls back the curtain on the nuanced behavioral processes shaping China’s new infrastructure investment landscape, revealing a tapestry woven from the threads of learning, competition, and policy influences. As urban centers across China confront the imperative to modernize infrastructures equitably and efficiently, acknowledging and strategically channeling peer effects may hold the key to unlocking more sustainable and resilient development pathways for the nation’s diverse cities.
Subject of Research:
Peer effects driving local government decision-making in new infrastructure investment across 258 Chinese cities.
Article Title:
Peer effects in local government decision-making on new infrastructure investment: evidence from Chinese 258 cities.
Article References:
Huo, T., Liu, S., Qiao, Y. et al. Peer effects in local government decision-making on new infrastructure investment: evidence from Chinese 258 cities. Humanit Soc Sci Commun 12, 1901 (2025). https://doi.org/10.1057/s41599-025-06177-w
Image Credits: AI Generated
