Can institutional innovation mitigate supply chain risks? Evidence from China’s free trade zones

Abstract As a key driver of cross-border trade, free trade zones (FTZs) play a crucial role in shaping the new global economic governance framework and optimizing supply chain management. This study utilizes panel data from 282 Chinese cities between 2007 and 2022 and applies the staggered difference-in-differences method to assess the impact of FTZ establishment on supply chain risks. The results indicate that the construction of FTZs significantly reduces supply chain risks, with an average reduction of 5.7% compared to cities without FTZs. Moreover, the impact of FTZs on supply chain risks varies significantly based on geographic location, firm size, and ownership structure. This paper further explores the influence pathways through which FTZs mitigate supply chain risks, focusing on customer concentration, innovation agglomeration effects, and financial constraints. These findings provide valuable theoretical insights and practical guidance for future policy formulation.