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The impact of free trade zones on ESG performance: Evidence from China

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  • Zeng, Jing
  • Zhang, Bingqian
  • Li, Kevin K.

Abstract

Using a quasi-natural experiment from the establishment of China's free trade zones (FTZs) and a generalized difference-in-differences research design, we examine the impact of FTZs on firms' environmental, social and governance (ESG) performance. We find that the establishment of FTZs in China attracts foreign investment and improves ESG performance of firms registered in a city with an FTZ, compared to firms registered in cities without FTZs. Additional analysis shows that the positive impact of FTZs on ESG performance is more salient for firms with higher ESG investment capability or greater motivation to improve ESG performance. The findings suggest that foreign direct investment following the establishment of FTZs has a positive impact on target firms' corporate social responsibility.

Suggested Citation

  • Zeng, Jing & Zhang, Bingqian & Li, Kevin K., 2024. "The impact of free trade zones on ESG performance: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 1110-1122.
    • Handle: RePEc:eee:reveco:v:91:y:2024:i:c:p:1110-1122
    DOI: 10.1016/j.iref.2024.02.004
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