ABSTRACT China's pilot free trade zones (PFTZs) in various cities represent a form of institutional trade openness. This paper employs the staggered establishment of PFTZs as a quasi‐natural experiment to investigate the impact of such zones on urban per capita consumption. The empirical results show that per capita consumption is significantly lower in PFTZ cities than in non‐PFTZ cities. This negative effect operates through rising housing prices and declining wage income, both of which suppress urban consumption. Furthermore, heterogeneity in geographical locations and institutional innovation levels can account for the divergent consumption effects across cities. By documenting the unintended negative consequences of PFTZs on urban consumption in developing economies, this paper enriches the literature on institutional trade openness.
Wang et al. (Tue,) studied this question.