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The Impact of the Pilot Free Trade Zone on Regional Financial Development

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  • Lihui Wang
  • Zhihong Liu
  • Huailong Shi

Abstract

This paper focuses on the Shanghai pilot free trade zone (FTZ). It investigates the effect of the FTZ policy on regional financial development. The synthetic control method employs quarterly data from 2005 to 2019 at the provincial level to investigate counterfactual states before and after the pilot FTZ was set up. First, our results reveal that the Shanghai pilot FTZ had a positive influence on the following four variables proxied for regional financial development: (i) the scale of regional financial development; (ii) the efficiency of indirect financial development; (iii) the efficiency of direct financial development; (iv) the structure of financial development. Second, our results found that the policy effects that began to emerge from 2014 onwards exhibited a steadily increasing trend. As a result, the four proxy variables have increased by (i) 197 percent, (ii) 202 percent, (iii) 9.4 percent, and (iv) 15.2 percent, respectively. That is, the scale of regional financial development and the efficiency of indirect financial development have increased more than the other proxy variables.

Suggested Citation

  • Lihui Wang & Zhihong Liu & Huailong Shi, 2022. "The Impact of the Pilot Free Trade Zone on Regional Financial Development," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(5), pages 154-184, September.
    • Handle: RePEc:bla:chinae:v:30:y:2022:i:5:p:154-184
    DOI: 10.1111/cwe.12441
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    2. Hao Zhou & Xinyi Li & Xiaoli Li, 2023. "Can the Digital Economy Improve the Level of High-Quality Financial Development? Evidence from China," Sustainability, MDPI, vol. 15(9), pages 1-13, April.

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