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Fostering Enterprise Innovation: The Impact of China’s Pilot Free Trade Zones

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Abstract

In the ever-changing global landscape, economic development opportunities arise from novel circumstances. Economic globalization and the rapid internationalization of enterprises are promoting international economic growth. Concurrently, domestic economies transition from high-speed growth to superior-quality growth. Amidst this complexity, innovation emerges as a catalyst for enhancing enterprise quality and global competitiveness. China’s pilot free trade zones (FTZs), established in 2013, serve as experimental platforms to drive policy experimentation, attract foreign investment, and streamline cross-border trade. This study examines the impact of these zones on enterprise innovation using patent application data from China’s A-share listed companies between 2011 and 2020. While existing research often focuses on macroeconomic FTZ impacts, this study explores microeconomic implications on individual enterprises. Using Shanghai and Shenzhen A-share listed companies, a multi-period difference-in-differences method is employed to explore the influence of FTZ establishment on innovation output. The findings reveal that FTZs enhance enterprise innovation output, with heterogeneity across technology-intensive and state-owned enterprises. Financial constraints are identified as a mechanism linking FTZs to innovation. Theoretical implications emphasize the positive correlation between FTZs and innovation output, highlighting policy-driven incentives. Heterogeneity insights offer tailored interventions for diverse enterprise profiles. The study enriches innovation understanding, contributing to policy formulation. Managerial implications underscore FTZs’ dynamic catalyst role in enterprise innovation. Recommendations are offered for policymakers and practitioners to leverage FTZs for fostering innovation and economic growth. Ideas for future research suggest longitudinal analyses, global comparisons, and in-depth policy mechanism exploration. As the world economy evolves, FTZs emerge as key players in shaping innovation trajectories.

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Notes

  1. In 2013, China set up Shanghai Pilot Free Trade Zone. In 2014, Guangdong, Tianjin, and Fujian were given an official and written reply to establish their respective free trade zones. In 2016, another seven provinces started theirs, including Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan, and Shanxi. In 2018 and 2019, the fourth group of free trade zones was put into practice, in which the whole of Hainan Island formed a Pilot Free Trade Zone, and Shandong, Jiangsu, Hebei, Yunnan, Guangxi, and Heilongjiang subsequently established their free trade zones. As a result, the basic layout was formed, which is called “1 + 3 + 7 + 1 + 6” pattern. In China, the whole country can coordinate her efforts to further open up to the outside world.

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  1. School of International Trade and Economics, Shandong University of Finance and Economics, Jinan, China

    Ting Lei

  2. School of Economics and Management, Yantai Institute of Technology, Yantai, China

    Ping Xie

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Lei, T., Xie, P. Fostering Enterprise Innovation: The Impact of China’s Pilot Free Trade Zones. J Knowl Econ (2023). https://doi.org/10.1007/s13132-023-01501-8

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