Sustainability Effects of Free Trade Zones: Evidence from Water Pollution in China

Under the collaborative framework of sustainable development and environmental pollution control in China, there is an urgent need to break the governance dilemma of traditional environmental regulations and explore innovative paths for sustainability. This paper empirically tests the direct impact, spatial spillover effects, and mechanisms of free trade zones ( FTZ s) in China in reducing water pollution. Using a spatial Durbin model (SDM) combined with the staggered difference-in-differences (STA-DID) method on a dataset of 266 Chinese cities encompassing eastern, central, and western regions with diverse economic and environmental baselines from 2003 to 2023, the study finds that FTZ s significantly reduce local water pollution by 9.17 million tons of untreated sewage discharge (β = −916.6, p < 0.01), with a spatial spillover effect that decreases pollution in surrounding cities by 12.33 million tons (β = −1232.9, p < 0.01). Upgrading industrial structure, accelerating technological innovation, and strengthening government environmental governance constitute the core mediating channels. This study provides theoretical support for institutional innovation in environmental governance and empirical evidence to address the trade-off between economic growth and environmental protection in China, contributing to the understanding of how context-specific institutional innovations can advance regional sustainability, aligning with the United Nations Sustainable Development Goals (SDGs).