Pilot Free Trade Zone Establishment and New Firm Entry: Evidence from China

ABSTRACT This article investigates the effect of pilot free trade zones (FTZs) on new firm entry. Using firm registration data in China from 2003 to 2020, we find that the establishment of FTZs has a significant and persistent positive impact on new firm entry, and it is attributed to the capital and talent agglomeration induced by FTZs. Heterogeneous analyses show that FTZs primarily stimulate the entry of firms in high‐tech industries and domestic private firms, and the effect of FTZs is more pronounced in prefectures with higher institutional innovation and those in coastal areas. Moreover, FTZs exhibit positive spillover effects on the emergence of new firms in surrounding regions, suggesting that the establishment of FTZs has empowered coordinated regional development.