Research on the efficiency of factor allocation in the pilot free trade zones

Abstract

How does the establishment of the pilot free trade zones (PFTZs), an institutional innovation, affect the efficiency of factor allocation? Extant literature focuses mainly on a qualitative analysis of factor allocation in PFTZs and neglects the role of data in PFTZs. Using data on 259 prefectures and cities in China over the period 2011 to 2019, we examine the impact of PFTZs on the efficiency of factor allocation. We find that the establishment of PFTZs can significantly reduce the mismatch between capital and labor factors and promote efficiency in digital factor allocation, which can be attributed to the channels for industrial rationalization and upgrading. Our results not only theoretically explore the impact of the establishment of PFTZs on the efficiency of factor allocation but have important implications for raising factor allocation in PFTZs especially in the era of the digital economy.