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

Abstract

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.