Does the Pilot Free Trade Zone Promote the Quality of Urban Economic Growth: An Empirical Research Based on Quasi-Natural Experiment
Round 1
Reviewer 1 Report
The biggest issue I have about this paper is its relevance to issues of sustainability – which is the core of the journal’s theme. The motivation of the study and its research objectives seems more focused on evaluating the economic impact of Free Trade Zones without any discussion about why there is a need to do so and how does it link with (what) issues on sustainability? The paper is set up to examine the quality of urban economic growth but in the text, the discussion is merely about economic growth using urban data. The “quality” of growth, which is can be construed as a form of sustainability issue (which is my opinion) was not discussed in the paper except for its gross proxy (labor productivity). Not even the abstract addresses “urban” economic growth, implying the word “urban” and its sustainability nexus aren’t being discussed in detail in the paper. This is a shame because what will be more interesting would be understanding the impact of FTZ on the urbanization process or the process of achieving sustainable urbanization. The conclusion also did not highlight anything significant about sustainability issues. Hence this paper is more suitable for another journal.
There are other technical issues. To start with, perhaps some language editing especially on the punctuations where can be off-putting to the readers. Figure 1 is supposed to be the study’s theoretical framework but in the end, there were limited discussions e.g on the innovation, which the paper claimed that the negative list is one policy reform or innovation which may lead to high-quality growth. The problem is that it was not discussed at all in the conclusion section. I am not saying that we need to discuss every detail but to sweep everything under the contributions of FTZ seems questionable. Perhaps secondary materials to support the findings will suffice. This leads to one of the main issues with the empirical analysis. The proxy for FTZ is a dummy variable. While it is acceptable due to data scarcity, the explanatory power is weak. Hence the result can only be interpreted as time difference DID because real indicators e.g output of FTZ, the volume of trade, and other nominal FTZ-related variables are not available or not used in the study. Yes, FTZ promotes many things e.g innovation in trade supervision systems, mechanisms, etc. But a dummy variable can only identify structural changes between different periods. Whether the 1 is directly attributed to the FTZ as opposed to 0 non-development of FTZ, is a very open interpretation.
Problems of FTZ proxy aside, some independent variables may have collinearity issues. E.g are there any collinearity issues between government budget and highway (infrastructure development?). Unless the public infrastructure development may not fall under government infrastructure development, perhaps there may be some collinearity issues as well. For the mediation test, there are concerns as well because the model (1) and (2) specifically stated the relationship between fiscal and FTZ as endogenous and exogenous. In (3) and (4), both were entered as exogenous variables. Perhaps the 2SLS or IV method will be more suitable.
The policy proposal in the conclusion is rather weak. Despite so many tests conducted in the policy proposals can be explored greater based on the tests done in 5.2. For example, one can also suggest that since the impact of FTZ is more significant by focusing on the coastal city, to ensure sustainable development perhaps some diversification is needed i.e network with non-coastal cities to ride on the success of coastal cities.
Author Response
Point 1: The biggest issue I have about this paper is its relevance to issues of sustainability – which is the core of the journal’s theme. The motivation of the study and its research objectives seems more focused on evaluating the economic impact of Free Trade Zones without any discussion about why there is a need to do so and how does it link with (what) issues on sustainability? The paper is set up to examine the quality of urban economic growth but in the text, the discussion is merely about economic growth using urban data. The “quality” of growth, which is can be construed as a form of sustainability issue (which is my opinion) was not discussed in the paper except for its gross proxy (labor productivity). Not even the abstract addresses “urban” economic growth, implying the word “urban” and its sustainability nexus aren’t being discussed in detail in the paper. This is a shame because what will be more interesting would be understanding the impact of FTZ on the urbanization process or the process of achieving sustainable urbanization. The conclusion also did not highlight anything significant about sustainability issues. Hence this paper is more suitable for another journal.
Response 1: Thanks to reviewer for your very constructive comments. I have revised this opinion:
First, questions about this paper's relationship to sustainability: Most studies show that high-quality economic growth is a key factor in addressing sustainable development. I added the logical relationship between FTZ, the quality of economic growth, and sustainability issues in the introduction, and expounded the importance of assessing the effect of FTZ on the quality of economic growth for sustainable development.
Second, discussion on the quality of growth: I have revised the literature review section to add research progress on the quality of economic growth.
Third, questions about general agency (labor productivity): This article refers to the existing literature (eg ) in which economic quality is measured by labor productivity. Of course, a single input-output indicator is not comprehensive enough to measure economic quality, but due to the limitation of city-level data, it is temporarily impossible to use multiple input-output indicators to measure economic quality. to make up for this deficiency as much as possible in the research.
Fourth, the impact of FTZ on the process of urbanization, and the relationship between cities and sustainability: The article mainly discusses the relationship between FTZ and the sustainability of economic growth. "City" is the sample level used in the research data, so it does not discuss the relationship between cities and sustainability, and the impact of FTZ on urbanization. But this opinion from reviewer is very constructive, and I will focus on it in the following research.
Point 2: There are other technical issues. To start with, perhaps some language editing especially on the punctuations where can be off-putting to the readers. Figure 1 is supposed to be the study’s theoretical framework but in the end, there were limited discussions e.g on the innovation, which the paper claimed that the negative list is one policy reform or innovation which may lead to high-quality growth. The problem is that it was not discussed at all in the conclusion section. I am not saying that we need to discuss every detail but to sweep everything under the contributions of FTZ seems questionable. Perhaps secondary materials to support the findings will suffice. This leads to one of the main issues with the empirical analysis. The proxy for FTZ is a dummy variable. While it is acceptable due to data scarcity, the explanatory power is weak. Hence the result can only be interpreted as time difference DID because real indicators e.g output of FTZ, the volume of trade, and other nominal FTZ-related variables are not available or not used in the study. Yes, FTZ promotes many things e.g innovation in trade supervision systems, mechanisms, etc. But a dummy variable can only identify structural changes between different periods. Whether the 1 is directly attributed to the FTZ as opposed to 0 non-development of FTZ, is a very open interpretation.
Response 2:
First, the author has revised and polished the language editing, especially the punctuation.
Second, the innovation of the theoretical framework: The theoretical innovation of this paper is mainly reflected in the classification and identification of the FTZ system, and further theoretical analysis of its impact on economic quality. I have modified the theoretical framework accordingly.
Third, the question of the negative list is not discussed in the conclusion part: I am very grateful for the comments of reviewer. I have discussed targeted suggestions for institutional innovations such as the negative list in the conclusion part, so as to make the paper more complete.
Fourth, problems of FTZ proxy. This paper mainly refers to other relevant studies on policy evaluation, and uses DID to evaluate policies in the empirical part, and only discusses the difference in the quality of regional growth with (1) and without (0) FTZ. Of course, due to the limitations of data and methods, this is also one of the limitations of this paper. In the follow-up research, I will try to empirically test the system classification and further deepen the research.
Point 3: Problems of FTZ proxy aside, some independent variables may have collinearity issues. E.g are there any collinearity issues between government budget and highway (infrastructure development?). Unless the public infrastructure development may not fall under government infrastructure development, perhaps there may be some collinearity issues as well. For the mediation test, there are concerns as well because the model (1) and (2) specifically stated the relationship between fiscal and FTZ as endogenous and exogenous. In (3) and (4), both were entered as exogenous variables. Perhaps the 2SLS or IV method will be more suitable.
Response 3:
First, some independent variables may have collinearity issues. The government financial technology expenditure used in this article refers to the government R&D investment, which is in a parallel relationship with the public infrastructure investment. Therefore, we believe that there is no collinearity problem between the government science and technology budget expenditure and the infrastructure level.
Second, the agency problem of fiscal expenditure. In order to avoid ambiguity, the market-oriented reform adopts the market-oriented index as a proxy variable to test the mechanism.
Point 4: The policy proposal in the conclusion is rather weak. Despite so many tests conducted in the policy proposals can be explored greater based on the tests done in 5.2. For example, one can also suggest that since the impact of FTZ is more significant by focusing on the coastal city, to ensure sustainable development perhaps some diversification is needed i.e network with non-coastal cities to ride on the success of coastal cities.
Response 4:
According to the empirical research results, the policy recommendations have been enriched accordingly, and the classification has been explained one by one.
Reviewer 2 Report
- The authors should mention how standard errors are dealt with, are they clustered at the city level?
- The economic magnitude of the labor productivity effect seems pretty large, how could it be? The authors should give some discussion.
- In table 6, the authors should include two single variables in addition to their interaction term.
- In the mediation test, it seems that the authors repeat the description of the results in Table 7 twice. And authors should provide some evidence on why fiscal captures marketization (cite other papers).
- Moreover, it cannot rule output other potential mechanisms such as trade and FDI, the current results could not prove the importance of the market-oriented reform.
- In the heterogeneity test, the authors should use different control groups. For example, to study the effect of coastal pilot FTZ, the control group should not be all cities but should be only coastal cities.
- Proofread is necessary, there are some typos and mistakes.
Author Response
Point 1: The authors should mention how standard errors are dealt with, are they clustered at the city level?
Response 1: The paper uses city sample data and uses city-individual fixed effects to control for city-level characteristics that do not change over time
Point 2: The economic magnitude of the labor productivity effect seems pretty large, how could it be? The authors should give some discussion.
Response 2: In the analysis of empirical results, the effect of labor productivity is further explained.
Point 3: In table 6, the authors should include two single variables in addition to their interaction term.
Response 3: In Table 6, the empirical results for two single variables are supplemented.
Point 4: In the mediation test, it seems that the authors repeat the description of the results in Table 7 twice. And authors should provide some evidence on why fiscal captures marketization (cite other papers).
Response 4: In the mechanism test, the explanation of Table 7 was indeed repeated due to a clerical error, and the repetition has been removed. In addition, the market-oriented reform is changed to use the market-oriented index as a proxy variable for research. On the one hand, it is more representative, and on the other hand, it can be distinguished from the fiscal expenditure index in model (1).
Point 5: Moreover, it cannot rule output other potential mechanisms such as trade and FDI, the current results could not prove the importance of the market-oriented reform.
Response 5: In the theoretical mechanism of the paper, it expounds in detail how FTZ promotes the improvement of economic quality by promoting market-oriented reforms. Only this mechanism has been tested empirically. The trade and FDI is the policy innovation of FTZ itself, that is to say, the construction of FTZ will promote the increase of trade and FDI, and these will further promote the market-oriented reform (This part of the content is mainly elaborated in the mechanism test to prove the importance of market-oriented reform).
Point 6: In the heterogeneity test, the authors should use different control groups. For example, to study the effect of coastal pilot FTZ, the control group should not be all cities but should be only coastal cities.
Response 6: Thanks to the reviewer for valuable comments, the heterogeneity test has been modified accordingly, using a different control group for the empirical test.
Point 7: Proofread is necessary, there are some typos and mistakes.
Response 7: I have further proofread the article and corrected language editing issues such as typos.
Reviewer 3 Report
The manuscript is written well but it needs some minor revisions to improve the overall quality of the paper.
Comments for author File: 
Comments.pdf
Author Response
Point 1: English Proofreading should be done.
Response 1: I have further proofread the article and corrected language editing issues such as typos.
Point 2: The author should add more studies to enrich the literature review section.
Response 2: Thank you very much for the comments of the reviewer. I have referred to the literature you provided to enrich the literature review, especially related research progress such as economic quality.
Point 3: Compare your results with the existing studies in the field
Response 3: Corresponding revisions have been made to compare the results with existing research in the field, highlighting the innovative nature of this study.
Point 4: Conclusion and policy recommendations should be separately written.
Response 3: Conclusions and policy recommendations have been written in two subsections.
Point 5: Conclusion and policy recommendations should be separately written.
Response 5: Complements the study's limitations.
Round 2
Reviewer 1 Report
I think it would be good to put the caveat on collinearity issue in the text itself. Perhaps mention it in a footnote. Or provide a correlation table to support your assertion. Also, in your response, you use the term "government financial technology expenditure". Which is a term not used in the article. Please use consistent terms. And without explaining, readers may not know that the variable is referring to government R&D expenditure. Or perhaps (if needed), create a table that carefully explain what the variables represents and a priori assumptions attached to them.
Author Response
Thanks to the comments of the reviewer, I mainly made the following changes:
- The correlation test was carried out, and there was no collinearity between the control variables, and it was explained in the footnotes of the paper.
- The variable meaning of government expenditure has been modified accordingly, and changed to a more commonly used expression.
- I have further proofread the article and corrected language editing issues such as typos.
Author Response File: 
Author Response.docx
