The Impact of Free-Trade Zones on Total Factor Productivity: Evidence from China

Jun Chen (), Bingyu Yang and Maoguo Wu ()
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Jun Chen: Shanghai University
Bingyu Yang: Shanghai University
Maoguo Wu: Shanghai University

Journal of the Knowledge Economy, 2024, vol. 15, issue 4, No 79, 17649-17675

Abstract: Abstract Utilizing panel data for 284 prefecture-level cities in China from 2007–2018, this study evaluates the impact of free-trade zones (FTZs) on local total factor productivity (TFP), implementing a difference-in-differences framework. To address endogeneity concerns, we adopt propensity score matching and synthetic control methods. The results show that FTZs significantly promote the TFP of localities with operational zones, which holds after robustness checks. A dynamic effect analysis established that the promotion effect appears immediately after FTZ establishment but lasts only for approximately 1 year. Further, a heterogeneity analysis shows that the FTZ impact is only significant in western and eastern cities, those with high marketization, or sub-provincial cities. Additionally, establishing FTZs promotes local TFP through industrial structure advancement, industrial structure rationalization, and city innovation capacity. This study suggests that the government should continue to improve FTZs’ layout and dispersal, implement differentiated positioning, explore long-term development of FTZs to upgrade the industrial structure, and promote innovation.

Keywords: Free-trade zone; Total factor productivity; China; Difference-in-differences; Synthetic control method (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s13132-024-01850-y

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