Free market initiatives: Benefits and distortions from political power

Qi Zhang and Bin Zhao

Economic Inquiry, 2026, vol. 64, issue 3, 931-954

Abstract: This study examines the effects of China's Free Trade Zone (FTZ) initiative on firm performance and how these effects vary by firms' political power. Using a staggered difference‐in‐differences design in two settings, we find that FTZ implementation increases return on assets, total factor productivity, and exports. These gains are larger for state‐owned and politically connected firms, especially in productivity. Mechanism analyses suggest that politically advantaged firms benefit more from lower effective tax rates and reduced financial expenses. The findings show that political power distorts the gains from market liberalization and limits equal access to reform opportunities.

Date: 2026
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/ecin.70062

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:ecinqu:v:64:y:2026:i:3:p:931-954

Ordering information: This journal article can be ordered from
https://ordering.onl ... s.aspx?ref=1465-7295

Access Statistics for this article

Economic Inquiry is currently edited by Tim Salmon

More articles in Economic Inquiry from Western Economic Association International Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().