The impact of pilot free trade zone on service industry structure upgrading

Abstract

China has established pilot Free Trade Zones (FTZs) to optimize the service industry structure. However, limited research has been conducted on the impacts of pilot FTZs on service industry structure upgrading in response to the new international and domestic development paradigm. This study makes the first attempt to examine the impact of the GDFTZ policy on the service industry structure upgrading in China considering the establishment of the Guangdong Pilot Free Trade Zone (GDFTZ) in 2015 as a quasi-natural experiment. We apply the difference-in-differences method on panel data from 2005 to 2019. Furthermore, this study explores the mechanisms and the spatial spillover effect of the GDFTZ policy. We find that the GDFTZ significantly promotes service industry structure upgrading; the results hold after considering the endogeneity using the instrumental variable method. By distinguishing different types of technology innovation, we find that the GDFTZ can upgrade the service industry structure through imitation and independent innovation instead of technology introduction. Additionally, GDFTZ can promote service firm agglomerations and financial resource allocation efficiency to upgrade the service industry structure. Moreover, the GDFTZ has positive spatial spillover effects on neighboring cities. Our findings suggest that the GDFTZ policy can play a distinctive role in upgrading the service industry structure by promoting innovation and service firm agglomeration, which is different from the previous opening-up policies.