Impact of Free Trade Zones on Chinaʼs ICT Products Trade: A PSM-DID Analysis

Abstract

It investigates the impact of Chinaʼs FTZs on the countryʼs trade in ICT products—a sector central to Chinaʼs industrial digitisation and integration into global value chains—by applying a propensity score matching difference-in-differences (PSM-DID) approach to bilateral trade data between China and 35 partner countries from 2000 to 2022. The analysis finds that the expansion of Chinaʼs FTZ network, which by the end of 2023 encompassed 22 agreements with 29 countries and regions and accounted for roughly one-third of Chinaʼs total foreign trade, has significantly boosted ICT trade. Specifically, the establishment of FTZs is associated with increases of 21.0% in overall trade volume, 11.1% in imports, and 52.7% in exports of ICT products with partner countries. The results further reveal that economic status, openness, internet development, education levels, and government efficiency in partner countries are positively correlated with ICT trade flows. Heterogeneity analysis indicates that the trade-enhancing effects of FTZs are stronger for imports than exports and vary according to the economic and developmental characteristics of partner countries, with FTZ benefits materialising gradually over time. These findings contribute to how FTZs shape Chinaʼs participation in the global ICT value chain and inform policy on the design and implementation of trade zones.