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Free trade zone policy and corporate artificial intelligence transformation: Empirical evidence from China

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  • Huang, Yuhong
  • Lan, Mudan

Abstract

Against the backdrop of accelerating globalization and the growing prominence of artificial intelligence (AI), existing research has largely overlooked the influence of institutional openness on AI development. This paper regards the establishment of China's Free Trade Zones (FTZs) as a quasi-natural experiment, aiming to uncover the causal effects of open institutional arrangements on corporate AI transformation. The findings demonstrate that the construction of FTZs fosters AI transformation among firms, with more pronounced impacts in inland cities, high-technology industries, and enterprises possessing strong dynamic capabilities. These conclusions are validated through parallel trend tests, instrumental variable approaches, and a series of robustness checks. The mechanism analysis indicates that FTZ policies exert influence by intensifying market competition, alleviating financing constraints, upgrading human capital, and stimulating research and innovation. Further extended analyses reveal that FTZ policies exhibit pronounced spatial spillover effects, and their positive influence on artificial intelligence transformation ultimately enhances firms' resource allocation efficiency and cost markup rates. This study extends the theoretical discourse on institutions and corporate transformation while offering practical insights for countries seeking to advance AI-driven technological change through broader openness.

Suggested Citation

  • Huang, Yuhong & Lan, Mudan, 2026. "Free trade zone policy and corporate artificial intelligence transformation: Empirical evidence from China," Technology in Society, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:teinso:v:87:y:2026:i:c:s0160791x26001545
    DOI: 10.1016/j.techsoc.2026.103365
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    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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