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Balancing trade and sustainability: free trade zones and corporate ESG performance in China

Author

Listed:
  • Mengjuan Ling

    (Kyrgyz State University Named After I. Arabaev)

  • Mingjun Wang

    (Kyrgyz State University Named After I. Arabaev)

  • Kalybek Zh. Abdykadyrov

    (Kyrgyz State University Named After I. Arabaev)

Abstract

This study uses the establishment of pilot Free Trade Zones (FTZs) as a quasi-natural experiment to examine its effects on the firms’ environmental, social, and governance (ESG) performance in China. Drawing on firm-level data from 2009 to 2022, this study employs a multi-stage difference-in-differences (DID) model to explore the impact of FTZs on ESG performance. The findings indicate that FTZs create a green effect that is generated by the promotion effect of green finance and green technology innovation, improving the firms’ ESG performance. Moreover, the benefits of FTZs are more pronounced for firms operating in the higher competitive and highly polluted industries, firms located in the central-west region, and firms with green investors and lower credit levels. This study contributes to the understanding of how developing countries can balance economic liberalization with environmental sustainability, offering empirical insights for designing frameworks that support high-quality development and bolster ESG performance.

Suggested Citation

  • Mengjuan Ling & Mingjun Wang & Kalybek Zh. Abdykadyrov, 2025. "Balancing trade and sustainability: free trade zones and corporate ESG performance in China," International Economics and Economic Policy, Springer, vol. 22(4), pages 1-30, October.
    • Handle: RePEc:kap:iecepo:v:22:y:2025:i:4:d:10.1007_s10368-025-00683-7
    DOI: 10.1007/s10368-025-00683-7
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