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| Institutional Opening Up and Chinese-Style Innovation: A Quasi-natural Experiment Based on Pilot Free Trade Zones |
| ZHU Zhujun, SHI Yifan, LIU Leyi
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| School of Economics /Research Centre for Digital Innovation and Global Value Chain Upgrading, Zhejiang Gongshang University; College of Business, Shanghai University of Finance and Economics |
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Abstract Research based on Chinese enterprise data reveals that, under open conditions, innovation with Chinese characteristics exhibits typical features of low quality and low disruptiveness. Promoting open innovation and achieving greater self-reliance and strength in science and technology in China are of significant importance for developing new quality productive forces. The institutional opening-up represented by pilot free trade zones (PFTZs) provides a suitable policy shock scenario for evaluating policy effects and the extent to which enterprise innovation is influenced by institutional factors. Most literature directly related to this paper conducts preliminary studies on the mechanisms through which PFTZs affect enterprise innovation behavior, primarily using listed company data or macro-level data. However, limitations in sample representativeness make it difficult to accurately assess the impact of this policy. This study offers a reference for promoting self-reliance and strength in China's scientific and technological innovation under expanding institutional opening-up.
We extend the model of Aghion et al. (2024) by incorporating institutional transaction costs and labor factor structure, revealing the mechanisms through which institutional opening-up affects enterprise innovation behavior. We crawl enterprise latitude and longitude information based on registered addresses and manually collect the geographic boundaries of 53 PFTZ sub-zones for precise enterprise identification. Building on this, we evaluate the innovation effects of PFTZs using datasets on tax surveys, patents, and enterprise recruitment from 2016 to 2020.
The key findings are as follows: (1) PFTZs significantly increase both the quantity and quality of enterprise innovation, with patent applications and citations rising by 1.04% and 0.87%, respectively. A boundary-discontinuity-difference-in-differences (BD-DD) approach based on latitude and longitude verifies the preliminary findings. (2) PFTZs increase the consolidating innovation index by 0.88%, while the impact on disruptive innovation is not significant. (3) PFTZs promote enterprise innovation through positive cost-saving and factor-upgrading effects, and negative competition-intensifying and market-scale effects. (4) Institutional reforms within PFTZs, such as the reduction of negative list items and the replication and promotion of pilot experience, help better realize the innovation-enhancing role of PFTZs. Institutional innovations aligned with local comparative advantages demonstrate stronger positive effects. (5) Extended analyses from spatial technology spillover and enterprise life cycle perspectives show that PFTZ enterprises in mature and decline stages are more inclined towards disruptive innovation.
The marginal contributions are as follows: (1) We manually collect and compile the geographic boundaries of 53 PFTZ sub-zones across 17 provinces and the geographic information of over 440,000 enterprises. Using the ray casting algorithm for assignment judgment and shortest distance calculation, we provide a practical methodological tool for subsequent research. (2) We respectively match the PFTZ negative lists and institutional innovation to the 3-digit industry level and provincial administrative level, constructing two moderating variables: institutional deepening and institutional innovation. This represents an early decomposition of the differential policy effects of various PFTZs on enterprise innovation from a policy intensity perspective. Among these, the institutional coupling index calculated based on institutional innovation and industrial comparative advantage offers a novel perspective for PFTZ performance evaluation. (3) We find that PFTZs reduce institutional transaction costs such as administrative, sales, and financial expenses, while increasing enterprise demand for recruiting high-skilled labor in positions like R&D management. (4) The policy recommendations propose fully leveraging the positive moderating role of institutional deepening and innovation on PFTZs, actively exploring optimized paths for the diversified coupling development of institutional innovation and local comparative advantages, and implementing a PFTZ upgrade strategy from the perspective of institutional opening-up.
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Received: 27 May 2025
Published: 01 April 2026
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