The Supply chain spillovers of Pilot Free Trade Zones on GVC upgrading of Chinese firms

Pilot Free Trade Zones (PFTZs) represent a pivotal national strategy for advancing China’s high-quality opening up, which offer a quasi-natural experiment to test the supply chain spillovers. By constructing the panel data of Chinese A-share listed firms during the period of 2008 to 2016, this study examines the spillover effects of PFTZs on firms’ GVC positions through supply chain linkages utilizing DID method. The results indicate that PFTZs significantly improve GVC positions of both upstream and downstream firms. Specifically customers in PFTZs enhance their suppliers’ GVC positions by triggering innovation, while suppliers in PFTZs facilitate their customers’ GVC upgrading through cost reduction. These spillovers exhibit significant heterogeneity across financial constraints, market concentration, and regions. In addition, this study reveals that PFTZs exert significantly negative effects on GVC positions of downstream SMEs, whereas the positive effects on upstream SMEs’ GVC positions are not statistically significant. The implication of these findings is that greater policy attention should be paid to supply chain spillover mechanisms, considering their heterogeneous effects across customers, suppliers, and regions.