Development of Pilot Free Trade Zones and Regional Economic Growth in China: Comparison on the Conducting Paths and Dynamic Mechanisms

Abstract

This study discusses the effect and the dynamic mechanism of free trade zone (FTZ) development promoting regional economic growth in China from the perspective of institutional innovation, and finds as follows. (1) The identification process based on difference-in-differences (DID) testing and Bayesian information criterion (BIC) indicates that the institutional innovation of FTZs not only drives regional economic growth, but acts as one of the core factors among the many drivers. (2) The rapid development of investment and trade, as the primal core function of FTZs, is an important dynamic factor for FTZs to promote regional economic growth. It means in the macro-context of lasting and repeated China-U.S.Trade frictions, FTZ development should refer to the practice of China (Shanghai) Pilot Free Trade Zone and China (Zhejiang) Pilot Free Trade Zone in aligning to high-standard investment and trade criteria, return to the origin of free trade, and actively seek policy support in improving trade openness and investment facilitation. (3) With the synthetic control method used, the study finds a wide gap in the "experimental effect" of setting up FTZs in different areas. The effect is better in coastal FTZs than in inland ones, and FTZs established later usually have less noticeable effect. On this account, FTZs in China should be positioned differently based on their characteristics of location and endowment; featured development modes should be explored to reduce homogeneous competition; development of coastal and inland FTZs should be balanced and coordinated.