Can China’s Pilot Free Trade Zone Improve Trade Efficiency?

Abstract

In recent years, there were many researches on China Free Trade Pilot Zone (FTZ), however, there was still a lack of research on the effect of the FTZ on trade efficiency. To make up for gaps in research, this paper calculated the trade efficiency of 30 provinces in China with stochastic frontier gravity model, and then empirically tested the policy effect of the FTZ by using the propensity score matching and difference in difference (PSM-DID) method, and further analyzed the inherent mechanism. The results showed that China’s general level of trade efficiency was relatively low, while the average trade efficiency in FTZs was significantly higher. The establishment of the FTZ had a significant positive impact on trade efficiency advances. Before and after the establishment of the pilot free trade zone, the difference between the changes in the trade efficiency measurement results of the treated group provinces and the trade efficiency measurement results of the control group provinces showed the characteristics of first increasing and then decreasing, and the policy effect has a certain lag. The establishment of the FTZ significantly reduced the trade cost. The model estimated that the trade efficiency increased by 3.576% for every 1% growth of trade cost, and the policy effect of the FTZ was significantly positive, which verified the existence of the intermediary effect of trade cost.