Who Exactly Has China's Pilot Free Trade Zone Attracted？ —— Evidence from Quasi Natural Experiments Based on 282 Cities

Abstract

The pilot free trade zone is an institutional attempt under China's opening-up pattern, and its policy effects have played an important role in the high-quality development of the Chinese economy. Based on the balanced panel data of 282 cities in China from 2008 to 2021, this article adopts a multi-stage difference method and takes the establishment of free trade zones as a quasi-natural experiment to explore the role of free trade experiments in attracting enterprises from different sources. The main conclusion of the study is that the establishment of the free trade zone has significantly increased the proportion of enterprises in Chinese Mainland in the city, but also significantly squeezed out foreign-funded enterprises and Chinese Hong Kong, Macao and Taiwan funded enterprises. This conclusion has passed a series of robustness tests; The study also found that foreign-funded enterprises exhibit higher resilience when facing pressure than enterprises from Chinese Hong Kong, Macao, and Taiwan in China. Heterogeneity analysis found that the crowding out effect only works in cities in China's coastal provinces. The study suggests that in order to attract foreign-funded enterprises and more effectively promote the operation of enterprises from Chinese Hong Kong, Macao and Taiwan in cities of Chinese Mainland, policy makers need to enhance the competitive advantages of foreign-funded enterprises and enterprises from Chinese Mainland, Macao and Taiwan compared with enterprises in mainland China, so as to diversify the source of enterprises in cities and expand the level of opening up.