Free market initiatives: Benefits and distortions from political power
Abstract
Abstract This study examines the effects of China's Free Trade Zone (FTZ) initiative on firm performance and how these effects vary by firms' political power. Using a staggered difference‐in‐differences design in two settings, we find that FTZ implementation increases return on assets, total factor productivity, and exports. These gains are larger for state‐owned and politically connected firms, especially in productivity. Mechanism analyses suggest that politically advantaged firms benefit more from lower effective tax rates and reduced financial expenses. The findings show that political power distorts the gains from market liberalization and limits equal access to reform opportunities.
Fields of Study & Subjects
Political Influence and Corporate Strategies
International Development and Aid
Taxation and Compliance Studies
Publication details
- Journal / source
- Economic Inquiry
- Volume
- 64
- Issue
- 3
- Pages
- 931–954
- Publication date
- 18 April 2026
- Language
- EN