Does the pilot free trade zone policy attract the entering of foreign-invested enterprises? The evidence from China

ABSTRACT

As an essential policy experiment initiated by the Chinese government, the pilot free trade zone (FTZ) policy aims to attract foreign investment and accelerate China’s economic growth. However, its full effects on the entering of foreign-investment enterprises are still inadequately understood. This article, employing the panel data of China’s prefecture-level cities from 2009 to 2017, empirically examines the effects of the pilot FTZs on attracting the entering of foreign-invested enterprises with a difference-in-difference (DID) regression. With a parallel trend test, the results disclose that the pilot FTZs can significantly attract the entering of foreign-invested enterprises. The yearly number of newly-registered foreign-invested enterprises can increase by over 90% if the city enforces the pilot FTZ policy. Besides, the heterogeneous effects of pilot FTZs are analysed, unveiling that the cities with implementation of the Special Economic Zone policy in earlier years would have much larger effects. In particular, the recently established pilot FTZs appear to have insignificant effects on attracting the entering of foreign-invested enterprises, probably due to the time-lag effects on the implementation of the FTZ policy and the progressive perfecting of supportive policies.

KEYWORDS:

• Pilot free trade zone
• difference-in-difference regression
• foreign-invested enterprises
• China

JEL CLASSIFICATION:

• B23
• C23

Acknowledgments

The authors acknowledge their respective financial support from the National Key R&D Program of China (Grant No. 2016YFA0602503), the National Natural Science Foundation (Grant No. 71903014; 71773010), and the Fundamental Research Funds for the Central Universities (Grant No. 2018NTSS14). We also appreciate the anonymous reviewers for constructive comments, and Dr Feicheng Wang from University of Göttingen, Germany for his improvement suggestions.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The foreign investment management platform of the Ministry of Commerce of China is online available at: http://wzzxbs.mofcom.gov.cn/gz.html

Additional information

Funding

This work was supported by the National Key R&D Progam of China [2016YFA0602503]; The National Natural Science Foundation of China [71773010, 71903014]; Fundamental Research Funds for the Central Universities of China [2018 NTSS14].