Fostering regional innovation efficiency through pilot free trade zones: Evidence from China

The establishment of a pilot free trade zone (PFTZ) in an economy has motivated researchers to examine whether this supply-side policy fosters innovation efficiency and the associated transmission mechanism. The policy aligns with the concepts of agglomeration economics, which considers that clustering industries and firms in specific geographic areas can enhance knowledge exchange, economies of scale, network effects and access to diverse talent pools. Utilising provincial panel data spanning from 2006 to 2019, this study evaluates how China's PFTZs have affected regional innovation efficiency (RIE). The results indicate that PFTZs have the potential to enhance RIE, with the digital economy serving as an effective catalyst for bolstering this positive influence. Consequently, expanding the PFTZs and establishing new ones can prove pivotal in attracting additional foreign investments and stimulating RIE in the post-COVID era.