Trade liberalization and energy efficiency: Quasi-natural experiment evidence from the pilot free trade zones in China

Abstract

Amidst the challenging international scenario and the profound ecological crisis, free trade zones serve as crucial avenues for enhancing the efficiency of energy utilization and fostering high-quality development. Drawing upon panel data covering 265 Chinese cities between 2006 and 2020, we employ a multi-period spatial difference-in-differences framework to examine the effect of the pilot free trade zones policy on energy efficiency, along with its underlying driving forces. The results show that the pilot free trade zone policy characterized by trade liberalization have a positive effect on energy efficiency gains in pilot cities. Simultaneously it creates a slight spatial spillover effect on energy efficiency improvements in non-pilot neighboring cities with strong economic ties. Trade liberalization is more likely to promote energy efficiency in cities with low foreign trade dependence and in non-provincial cities. Economies of scale through industrial agglomeration, foreign trade and technological innovation are important channels for the role of trade liberalization on energy efficiency. The findings of this paper shed novel insights into enhancing energy efficiency and addressing the imbalance between energy supply and demand, specifically from the lens of trade liberalization.