Have China’s Pilot Free Trade Zones Improved Green Total Factor Productivity?

Abstract

Free trade zones (FTZ) are designated areas for promoting trade openness and investment facilitation. In China, FTZs are also regarded as “green areas” in which planning actions and institutional innovations are implemented, and there is a commitment to promoting urban green and healthy development. Given that green total factor productivity (GTFP) is an important measure of a city’s health and green performance, this study exploits the difference-in-differences method to explore the impact of pilot FTZs on urban GTFP in 280 cities in China for the period between 2005 and 2017. The results show that the green areas positively contributed to the growth of GTFP. Moreover, the outcome holds with robustness tests. Statistically, the positive effect emerged in cities during the first three years after introducing the initiative, with the effect disappearing afterward. It also had a strong positive impact in the central and western regions and in large and medium-sized cities, while the influence remained insignificant in the remaining areas in China. Furthermore, the paper also reveals that the promotion of foreign direct investment and industrial structure upgrading are the primary channels through which the positive relationship between pilot FTZs and GTFP is established.