Have the PFTZs narrowed the regional economic gap? – Verification based on difference in differences method

Abstract

Pilot free trade zones (PFTZs) is a significant result of China's institutional innovation. The analysis examines the role of PFTZs in narrowing economic gap in China using provincial data from 2000 to 2019. This paper firstly measures the current situation and trend of economic development gap in China, and sorts out the mechanism of the institutional innovation on narrowing the economic gap. Secondly, the empirical test is conducted by difference in differences method and finds as follows. (1) PFTZs have positive effect on narrowing the economic gap. (2) PFTZs have more significant effect on the northern provinces and provinces with better business environment. (3)PFTZs narrow the economic gap by saving transaction costs. Based on the results of this test, this study proposes corresponding countermeasures.