Free Trade Zone Policy and Carbon Dioxide Emissions: a Synthetic Control Group Approach

The international community has reached a consensus on preventing the global climate from deterioration. As the country with the largest carbon dioxide emissions, China has made a commitment to such prevention. Free trade zone (FTZ) established in 2013 is a designated area planned for promoting trade openness and investment facilitation. More importantly, it is a policy experiment aimed at establishing a green and low-carbon development model. Based on province-level data of China for the period 1997-2017, this study exploits the synthetic control method to explore the impact of FTZ policy on carbon dioxide emissions. The results show that, compared with the synthetic control regions, the carbon dioxide emission of the Shanghai FTZ has reduced by about 10% after the implementation of the FTZ policy. Moreover, the outcome holds with placebo tests and sensitivity analysis. Employing the difference-in-differences method, the results also demonstrate FTZ policy substantially reduces carbon dioxide emissions. Our findings provide institutional enlightenments for China and other developing countries to balance economic development and environmental protection with opening to the outside world.