Gains or losses: Can grassland ecological compensation policy alleviate the decoupling of welfare from wealth?

Implementing the Grassland Ecological Compensation Policy (GECP) to address the decoupling of welfare from wealth is a crucial strategy for achieving sustainable development goals. However, how the GECP alleviates the decoupling trend remains underexplored. Using panel data from prefecture-level cities in Qinghai Province from 2011 to 2021, this study assesses the decoupling trend between welfare and wealth. Employing a Difference-in-Differences model, we delve into the GECP’s impact on the decoupling trend for the first time and analyze the underlying mechanisms. Our findings indicate that the GECP significantly alleviates the decoupling trend, with effects varying by natural, social, economic, and environmental characteristics. Furthermore, while the GECP alleviates the decoupling trend by promoting industrial structure optimization and reducing ecological footprint, it exacerbates this trend by increasing income inequality. This study provides policy insights to enhance the harmonious coexistence between humans and nature in China’s modernization and global sustainable development.