Balancing trade and sustainability: free trade zones and corporate ESG performance in China

Mengjuan Ling (), Mingjun Wang and Kalybek Zh. Abdykadyrov
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Mengjuan Ling: Kyrgyz State University Named After I. Arabaev
Mingjun Wang: Kyrgyz State University Named After I. Arabaev
Kalybek Zh. Abdykadyrov: Kyrgyz State University Named After I. Arabaev

International Economics and Economic Policy, 2025, vol. 22, issue 4, No 8, 30 pages

Abstract: Abstract This study uses the establishment of pilot Free Trade Zones (FTZs) as a quasi-natural experiment to examine its effects on the firms’ environmental, social, and governance (ESG) performance in China. Drawing on firm-level data from 2009 to 2022, this study employs a multi-stage difference-in-differences (DID) model to explore the impact of FTZs on ESG performance. The findings indicate that FTZs create a green effect that is generated by the promotion effect of green finance and green technology innovation, improving the firms’ ESG performance. Moreover, the benefits of FTZs are more pronounced for firms operating in the higher competitive and highly polluted industries, firms located in the central-west region, and firms with green investors and lower credit levels. This study contributes to the understanding of how developing countries can balance economic liberalization with environmental sustainability, offering empirical insights for designing frameworks that support high-quality development and bolster ESG performance.

Keywords: Free trade zones; ESG performance; Sustainable development (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10368-025-00683-7

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