Assessing the economic effects of Hainan’s free trade port policy using the HCW method

Public Service and Public Policy, Hainan University/Arizona State University, 570228 Haikou, China

Abstract

Hainan’s Free Trade Port (FTP) policy is a major initiative to promote the opening up and development of China’s southernmost province. The policy aims to create a world-class business environment and a high-level market system by 2035. However, the economic effects of this policy are not well understood. This paper applies the HCW method, a panel data approach for program evaluation, to assess the impact of Hainan’s FTP policy on four key indicators: trade, investment, talent and tax burden. The paper constructs optimal control groups for each indicator using the HCW and compares the actual outcomes of Hainan with the counterfactual outcomes that would have occurred in the absence of the policy intervention. The paper finds that Hainan’s FTP policy has increased its foreign trade and foreign direct investment significantly, but has not achieved noticeable improvements in attracting high-quality talent. The paper also conducts placebo tests to check the robustness and significance of the results and discusses some policy implications and future research directions based on the findings.