Shanghai Pilot Free Trade Zone: China's Exploration To an Economic Heavyweight Open Access

Li, Yanjie (2015)

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Shanghai Pilot Free Trade Zone (SHPFTZ) was launched on September 29, 2013. The establishment of SHPFTZ is meant to serve as a significant measure to promote reform and opening-up under changing global economic conditions. It also reflects the Chinese Government's commitment to a new system of foreign investment management based upon China's structure of Socialist Democracy. In light of this development, the paper is aimed at discussing the internal economic and legal impact of the establishment of SHPFTZ after two years' development. The first part of this paper provides a comprehensive understanding of SHPFTZ including its operations, structure, role and functions. The second part will mainly focus on using the Difference-in-Difference, ARIMA and OLS empirical models to analyze the growth of FDI compared with other major cities along the eastern coast of China after the establishment of SHPFTZ. Both DD and OLS models show that the establishment of SHPFTZ attracts more inflow FDI, but the effect is not significant in ARIMA model. More data and research are needed to testify the applicability of creating FTZ in other cites.

Table of Contents

1. Introduction 1

2. Literature Review 3

3. Data Analysis 7

4. Empirical Methodology 10

5. Results 24

6. Conclusions 35

7. References 37

8. Appendix 40

List of Tables

a. Major Measures for The Financial Sector Reform (Wan, 2014) 6

b. Dickey-Fuller General Least Squares for FDI 40

c. Augmented Dickey-Fuller Test For Unit Root 41

d. LM test for autoregressive conditional heteroskedasticity (ARCH) 42

e. Shanghai and Reference Cities: Realized FDI, Total Import and 43

Total Output Before and After the Establishment of SHPTFTZ

f. OLS Estimates for the ln(FDI) Using DD Model 44

g. OLS Estimates for the ln(FDI) Using ARIMA (3,1,1), Time And Dummies 45

h. AIC and SIC Values, Various Autoregressive Models 46

i. OLS Estimates of Errors On Its Lag Values 46

j. OLS Estimates of Errors On Its Lag Values 46

k. White's Test for Heteroskedasticity 46

l. OLS Estimates for the ln(FDI) Using Linear Multiple Regressions 47

List of Figures

a.The FDI in Levels From 01/2009 to 10/2015 48

b.The First Difference of FDI From 01/2009 to 10/2015 48

c. GARCH Residual 49

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