Institutional openness and carbon neutrality technology innovation: evidence from China

Abstract This paper examines the impact of China’s Pilot Free Trade Zones (PFTZs) on urban carbon neutrality technology innovation (CNTI) using a multiperiod difference-in-differences (DID) approach, with a balanced panel of 280 prefecture-level cities from 2009 to 2022. The empirical results show that PFTZ establishment significantly promotes CNTI, with an estimated coefficient of 0.284. This conclusion remains robust after a series of rigor tests, including parallel trend tests, placebo tests, propensity score matching–DID, and Bacon decomposition. Mechanism analysis identifies that PFTZs drive CNTI through three specific channels: the agglomeration of innovation factors (talent and capital), the strengthening of green financial mechanisms, and the upgrading of industrial structures. Further heterogeneity analysis reveals that the promotional effect is statistically stronger in cities with high intellectual property protection, strict environmental regulation, and high openness. Notably, the policy effect is significant in non-resource-based cities (non-RBCs) but insignificant in RBC, suggesting a ‘resource curse’ in low-carbon transition. This study enriches the literature on institutional openness and green technology innovation, providing quantitative evidence for aligning institutional reform with carbon neutrality goals.