How Do Overseas Economic and Trade Cooperation Zones along the Belt and Road Affect the Economic Growth of Host Countries?

Abstract

Based on the data of countries along the “One Belt and One Road” from 1998 to 2017, this paper uses the progressive Difference-in-Difference to analyze the impact of overseas economic and trade cooperation zones on the economic growth of host countries, which shows that the establishment of overseas economic and trade cooperation zones significantly promotes the economic development of host countries. Additionally, the specific mechanism of overseas economic and trade cooperation zones to promote the economic growth of the host country is analyzed using the mediating effect model, and the study shows that the overseas economic and trade cooperation zones can encourage the economic development of the host countries by attracting foreign investment inflows. Further heterogeneity analysis reveals that overseas economic and trade cooperation zones have stronger economic boosting effects on countries with lower income levels and poorer business systems. Different types of overseas economic and trade cooperation zones have other economic boosting effects on host countries. Among them, the economic impact of industrial, agricultural, and high-tech zones is significant, while the influence of logistics and comprehensive industrial zones is not yet significant. Finally, the paper carries out further discussion based on the above findings.

1. Introduction

An offshore economic and trade cooperation zone refers to an industrial park with complete infrastructure, clear leading industries, sound public service functions, and agglomeration and radiation effects, invested and built by Chinese-controlled enterprises with independent legal personality registered in the People’s Republic of China (excluding Hong Kong, Macao, and Taiwan) through Chinese-controlled separate legal entities established outside China. In 2006, China’s first offshore Economic and Trade Cooperation Zone (Pakistan Haier-Ruba Economic Zone) was listed and based in Pakistan. The initial development of overseas economic and trade cooperation zones began. As early as the 1990s, some Chinese enterprises went overseas and built development zones to obtain more export quotas, lower-cost raw material supplies, and deeper penetration into the local market. These explorations can be regarded as the precursor of overseas economic and trade cooperation zones. In 2013, after the “Belt and Road” initiative was proposed, the Chinese Ministry of Commerce positioned the zone as an important undertaking point for the “Belt and Road” strategy and planned to gradually increase the number and speed of zone construction. In 2012, the number of China’s cooperative zones was only 19, but after 2013, Chinese enterprises have been actively implementing the “go global” strategy and the number of zones has been increasing year by year with the support of government policies. “The countries and regions along the “Belt and Road” are the key regions for China to establish cooperation zones. A total of 5400 enterprises have been attracted to the zone. In terms of economic benefits, by the end of 2021, the zone will have absorbed a total of $50.7 billion in investment, brought $6.6 billion in tax revenue to the host country, and created 392,000 jobs for the local community.

Based on the existing literature, this paper argues that cooperative zones are not only an important platform for Chinese enterprises to “go global”, but also a powerful tool for economic growth in host countries. From China’s perspective, the zone is an important route for Chinese enterprises to go global and achieve industrial transfer. For example, Weijiang Feng (2012) points out that rising domestic labor and raw material prices and trade protectionism have led to strong demand for overseas economic and trade cooperation zones by domestic enterprises. Then, he summarizes the characteristics and development experience of the Suez Economic and Trade Cooperation Zone, whose success supports the importance of the Suez Economic and Trade Cooperation Zone for Chinese enterprises to “go global” [1]. Using the propensity score matching method, Jianan Li (2016) verified that the establishment of cooperation zones can significantly increase Chinese OFDI to host countries and its promotion effect exceeds that of bilateral investment agreements and free trade area agreements [2]. Chen Wei (2020) explores the role of the Zone in facilitating Chinese enterprises to go global from an institutional and cultural perspective, taking the Sihanoukville Special Economic Zone in Cambodia as an example [3]. From the perspective of the host country, the Zone is a window of foreign capital inflow, the large-scale inflow of foreign capital injects vitality into the host economy, and the comparative advantages of labor and resources can be fully utilized, bringing opportunities for the host country to promote economic growth and achieve industrial upgrading. For example, Deborah Brutigam (2014) qualitatively assessed the potential of China’s overseas special economic zones to contribute to the upgrading of Africa’s industrial structure by interviewing local African hosts and Chinese developers, and the study found that China’s overseas special economic zones established in Africa have improved local infrastructure and facilitated business investment [4]. Guangwen Meng (2019) analyzed the investment efficiency of different industries in the park through the case of Long Jiang Industry Park in Vietnam. The study found that the highest investment efficiency is in the light textile and new materials and processing industries, mainly because these two industries make full use of the comparative advantages of local labor and resources in the host country [5]. Through qualitative analysis, Liu Chen (2019) points out that the benign impact of cooperative zones on the host economy includes three stages: in the short term, improving investment, employment, and tax revenue in the host country; in the medium term, exerting industrial agglomeration effects; and in the long term, acting as a pilot for institutional reform in the host country [6]. In addition, achieving mutual benefit and a win-win situation with the co-construction countries is an important part of the high-quality development of the “Belt and Road”. As an important undertaking point of the “Belt and Road” strategy, does the cooperation zone provide a boost to the economic growth of the host countries along the “Belt and Road”? And how does it work? It is an important question worth studying. This paper will use the asymptotic double difference method to verify whether the cooperative zone can promote the economic growth of the host country, and then, based on this, this paper will use the mediating effect model to try to analyze the specific mechanism of the cooperative zone affecting the economic growth of the host country by using the important factor of foreign investment.

2. Literature Review

2.1. Literature Review of Overseas Economic and Trade Cooperation Zones

2.1.1. Foreign Studies on Cooperative Zones

Martin Perry Shaw (2000) summarizes the experience and development profile of Singapore’s overseas parks, and Singapore’s active exploration of building overseas parks provides valuable experience for the development of China’s overseas economic and trade cooperation zones [7]. Yahoo (2013) argues that overseas economic and trade cooperation zones can play the role of foreign aid and enhance China’s international image [8]. Jing Wang (2013) studied the impact of establishing overseas economic and trade cooperation zones on local economic development, using the example of overseas economic and trade cooperation zones established in China. The study’s results showed that the foreign investment inflows attracted by overseas economic and trade cooperation zones did not crowd out domestic investment and increased the real income of local workers. Further research found that overseas economic and trade cooperation zones established earlier can exert stronger economic benefits, and the greater the number of overseas economic and trade cooperation zones built, the stronger the contribution to local economic development [9]. Zeng (2016) summarizes the experiences and lessons learned from China–Africa industrial parks and then makes recommendations on other liberating African parks’ development potential [10]. Masiero (2017) points out that the overseas economic and trade cooperation zones built by China are internationalized as a group and argues that this is a new market entry mode. Based on the development experience of overseas economic and trade cooperation zones, the author analyzes the advantages of group-based internationalization, some of which are direct policy support from the government [11]. Zhengping Shen (2020) conducted a case study of overseas economic and trade cooperation zones along the “One Belt and One Road” route [12]. Ye Chao (2020) conducted a comparative analysis of overseas industrial parks along the Belt and Road and domestic industrial parks in China. The study found that overseas industrial parks are mainly market-oriented and focus on labor- and resource-intensive industries. In contrast, domestic industrial parks are mainly government-led and focus on high-tech industries [13]. Zhigao Liu (2021) analyzes the development and governance of China–White Industrial Park from the perspective of political economy and political geography and verifies that China–White Industrial Park has enabled China and Belarus to achieve mutual benefit and a win-win situation [14].

2.1.2. China’s Research on Cooperative Zones

The research on overseas economic and trade cooperation zones in China is relatively abundant, with three main research directions: a. research on the overall construction, layout, and development of cooperation zones; b. empirical research on the economic benefits of cooperation zones.

• A study on the overall construction, layout, and development of cooperative zones

Lianying Hong (2011) put forward the problems of unclear industrial positioning and wrong location selection in the development of China’s overseas economic and trade cooperation zone and pointed out that the government should change the model and shift to stimulating the autonomy and motivation of enterprises [15]. Lixin Guan (2012) compared the construction status of China’s overseas economic and trade cooperation zones with that of Singapore’s overseas industrial parks and suggested that the successful experience of Singapore’s overseas industrial parks should be drawn upon to strengthen the industrial positioning and supporting services of the zones [16]. Shen Minghui (2016) analyzes the advantages of overseas economic and trade cooperation zones for capacity cooperation and points out the importance of integrating overseas economic and trade cooperation zones with the “One Belt and One Road” strategy [17]. Dawei Cheng (2021) analyzes the main problems of financing, green development, policy adaptation, and personnel recruitment for private enterprises building overseas economic and trade cooperation zones and makes relevant policy recommendations [18]. Xiaoning Zhan (2021) composes an overview of the development of global overseas industrial parks and categorizes them according to their characteristics, based on which he proposes the development of a new generation of parks in China [19]. Hongyan Liu (2021) discusses the practical logic of overseas economic and trade cooperation zones along “One Belt and One Road” to facilitate the new development pattern of the double cycle and summarizes the experience and ideas of the development of cooperation zones in the context of the new development pattern [20]. Zhibin Fang (2022) studied the tax risks faced by Chinese enterprises in overseas economic and trade cooperation zones and pointed out that Chinese enterprises should strengthen foreign-related tax services and enhance tax cooperation with host governments [21]. Bing Yan (2022) examined the location choice of overseas economic and trade cooperation zones from an empirical perspective. The results of the study showed that overseas economic and trade cooperation zones have a significant preference for institutional risk, followed by the fact that the zones will choose higher tax levels to obtain cost advantages by institutional advantages and that bilateral investment agreements help firms to avoid risks in countries with poor institutional quality [22]. Yongjun Tang (2021) explores the business model of the China–Indonesia Economic and Trade Cooperation Zone from the perspective of stakeholder value co-creation. The results show that there are two types of business models in the zone, real estate, and urban functions, and there are two ways to match and guide the renewal of its business model [23].

b.

An empirical study on the economic benefits of cooperation zones

Peiyuan Xu (2019) constructs a theory of “One Belt and One Road” overseas economic and trade cooperation zones from the perspective of national institutional heterogeneity and the advantages of collective action and government guarantees in cooperation zones, and the empirical study shows that institutional heterogeneity among countries significantly inhibits China’s outbound investment [24]. Jun Xu (2020) studied the trade effects of over-seas economic and trade cooperation zones using a mediating effect model and found that both zones and OFDI promote trade exchanges. OFDI plays a mediating role in the indirect trade effects of zones [25]. Shuhua Guo (2020) used a stochastic frontier model to study the investment efficiency of overseas economic and trade cooperation zones and its influencing factors. The results showed that the home country’s economic development, exchange rate, natural resources, and technology level would improve the zone’s investment efficiency. The number of zones built in the host country could compensate for the loss of investment efficiency. Opening up to the outside world and a good institutional environment would also improve investment efficiency [26]. Bing Yan (2021) used the difference-in-differences method to verify that the establishment of cooperative zones significantly expands the trade scale of the host country and further investigated the possible mechanisms of the influence of cooperative zones on trade scale, such as institutional environment, infrastructure, etc. [27]. Xiangwei Zhang (2022) deeply analyzed the intrinsic connection between overseas cooperation zones and “One Belt and One Road” and “Five Links” and pointed out with empirical research that cooperation zones are more conducive to the growth of market-seeking and resource-using OFDI. The study also shows that the cooperation zones are complementary to the “people-to-people” and the domestic system of the host country, and alternative to the “facility connection, trade flow and capital flow” [28]. Using a difference-in-differences method, Chen Li (2022) empirically tested that overseas economic and trade cooperation zones promote two-way investment and bilateral trade between China and the host country, where the promotion of China’s OFDI and exports is more obvious, confirming the importance of cooperation zones in international economic and treated cooperation [29].

2.2. Studying Economic Growth Using the Double Difference Method

Difference-in-Differences models are highly adaptable to studying the effects of quasi-natural experiments. Several scholars have used double-difference models to analyze the impact of exogenous shocks on economic growth. For example, Xinye Zheng (2011) used a difference-in-differences model to estimate that the “direct provincial control” policy increases the economic growth rate by 1.3 percentage points and pointed out that economic decentralization causes economic growth [30]. Liu (2015) tested that establishing national high-tech zones can significantly promote the growth of local GDP per capita through a difference-in-differences model. There is a diminishing marginal effect of national high-tech zones on economic growth, i.e., the impact is more significant for cities with lower economic development levels, so national high-tech zones not only help economic growth but also help to narrow the development gap between regions [31]. The study of Feng Guo’s (2018) difference-in-differences model is the relationship between regional financial institutions and economic growth. The study finds that establishing city commercial banks significantly promotes urban economic development and dissects its specific impact mechanism. In addition, the economic driving role of urban commercial banks was found to be mainly in the industrial sector in the heterogeneity test [32]. Ying Wang (2021) also used a difference-in-differences model in her study of the mechanism of the effect of building intelligent cities on economic growth and used mediating effects to analyze the economic growth driven by intelligent cities through technological innovation and population aggregation effects. Further heterogeneity analysis found that smart cities boosted economic growth in eastern, central, and non-capital cities but widened the urban–rural income gap in western regions [33].

2.3. Summary of Literature Review

In summary, there is a rich literature on qualitative analysis of overseas economic and trade cooperation zones, but less literature from an empirical perspective. This quantitative analysis literature mainly takes the Chinese perspective and studies the economic benefits of cooperation zones, primarily focusing on the impact of cooperation zones on China’s economic indicators such as foreign direct investment and trade. In contrast, not much literature studies the economic benefits of cooperative zones from the host country’s perspective, and even fewer studies the relationship between cooperative zones and the host country’s economic growth. Secondly, most of the existing empirical studies focus on exploring the impact of cooperative zones on relevant economic indicators while lacking attention to the specific impact mechanisms and ways to achieve the effect of cooperative zones on relevant economic indicators. Therefore, based on the existing literature, this paper attempts to investigate the impact of foreign economic and trade cooperation zones on the economic growth of host countries using a progressive difference-in-differences model and, on this basis, attempts to analyze the influence mechanisms and heterogeneity.

3. Research Hypothesis and Methodology

3.1. Research Hypothesis

The overseas economic and trade cooperation zones are an essential platform for Chinese enterprises to “go global” and a powerful grip for the host country to achieve economic growth. As an essential undertaking point of the “One belt and one road” strategy, the overseas economic and trade cooperation zones should uphold the principle of mutual agreement, construction, and sharing and provide a boost to the economic growth of host countries along the “One Belt and One Road”. The first hypothesis is proposed in this paper as follows:

Hypothesis 1 (H1):

Overseas economic and trade cooperation zones promote economic growth in host countries.

Investment is one of the three driving forces of economic growth. From the host country’s perspective, the overseas economic and trade cooperation zone is the window of foreign capital inflow, and the large-scale inflow of foreign capital injects vitality into the host economy. After the leading industry is identified, the zone will gradually attract high-quality foreign enterprises to settle in the area with the support of national policies, which will further attract other upstream and downstream investors to enter and form the industrial aggregation effect, thus promoting the economic growth of the host country. At this point, this paper puts forward the second hypothesis:

Hypothesis 2 (H2):

One of the primary ways overseas economic and trade cooperation zones promote economic growth in the host country is to attract foreign investment inflows.

There are differences in the level of economic development and domestic systems of countries along the Belt and Road. Such differences may impact the economic boosting effect of cooperative zones. In addition, different types of cooperation zones have various leading industries, and the development of their leading sectors may have other effects on local economic development. At this point, this paper proposes the third hypothesis:

Hypothesis 3 (H3):

The contribution of overseas economic and trade cooperation zones to the host country’s economic growth is influenced by the level of economic development of the host country, the domestic system, and the type of cooperation zone.

3.2. Model and Variable Descriptions

This paper uses a multi-period DID model with the following settings.

$${\mathit{Y}}_{\mathit{i},\mathit{t}}=\mathit{\alpha }+\mathit{\beta }\mathit{P}\mathit{a}\mathit{r}{\mathit{k}}_{\mathit{i},\mathit{t}}+\mathit{\phi }{\mathit{x}}_{\mathit{i},\mathit{t}}+{\mathit{\mu }}_{\mathit{i}}+{\mathit{v}}_{\mathit{t}}+{\mathit{ϵ}}_{\mathit{i},\mathit{t}}$$

(1)

where ${\mathit{Y}}_{\mathit{i},\mathit{t}}$ are the explained variables; $\mathit{i}$ represents the country, and $\mathit{t}$ represents the year. $\mathit{P}\mathit{a}\mathit{r}{\mathit{k}}_{\mathit{i},\mathit{t}}$ are the explanatory variables and ${\mathit{x}}_{\mathit{i},\mathit{t}}$ represents the control variables. ${\mathit{\mu }}_{\mathit{i}}$ denotes country individual effects, ${\mathit{v}}_{\mathit{t}}$ denotes time effects, and ${\mathit{ϵ}}_{\mathit{i},\mathit{t}}$ denotes random disturbance terms.

3.2.1. Explained Variables

Considering that per capita gross domestic product better reflects the improvement of people’s living standards by economic growth, the explanatory variable is chosen as per capita gross domestic product (lnPGDP).

3.2.2. Explanatory Variables

$Par{k}_{i,t}$ is the core explanatory variable. If China establishes an overseas economic and trade cooperation zone in host country $i$ in year $t$, then $Par{k}_{i,t}$ takes 1; otherwise, it takes 0. The generation of $Par{k}_{i,t}$ is by using the interaction item $trea{t}_i\ast pos{t}_{i,t}$, where $trea{t}_i$ is the treatment group dummy variable, which takes the value of 1 if the country $i$ belongs to the “treatment group” where the foreign economic and trade cooperation zone is established, and takes the value of 0 if the country $i$ belongs to the “control group” where the foreign economic and trade cooperation zone is not established. $pos{t}_{i,t}$ is the treatment period dummy variable, and the countries in the treatment group will be affected by the policy only in the treatment period; that is, the countries in the treatment group will enter the treatment period after the establishment of the economic and trade operation zone. If the country $i$ enters the processing period, the value is 1; otherwise, the value is 0. In addition, the main explanatory variable used in the analysis of the mechanism in this paper is foreign investment inflows (lnFDI).

3.2.3. Control Variables

The control variables selected are the total population (lnPop), which reflects the size of the labor force and the market size. The natural resource-to-output ratio (Natural) reflects the natural resource endowment and dependence. The business freedom index (Business freedom) reflects the space to do business, and the unemployment rate (Uem) demonstrates the level of employment.

The details of the variables used in this paper are shown in

Table 1. Table describing the model variables.

Variable Category	Variable Name	Variable Symbols	Variable Meaning
Explained variables	Gross domestic product per capita	${\mathrm{lnPGDP}}_{i,t}$	The logarithm of the per capita gross domestic product $\mathrm{t} \mathrm{of} \mathrm{the} \mathrm{host} \mathrm{country} i$ $\mathrm{in} \mathrm{year} t$
Core explanatory variables	Foreign Economic and Trade Cooperation Zone	$Par{k}_{i,t}$	$\mathrm{In} \mathrm{the} \mathrm{year} t$$\mathrm{China}, \mathrm{whether} \mathrm{to} \mathrm{establish} \mathrm{an} \mathrm{overseas} \mathrm{economic} \mathrm{and} \mathrm{trade} \mathrm{cooperation} \mathrm{zone} \mathrm{in} \mathrm{the} \mathrm{host} \mathrm{country} i$
Intermediate variables	Foreign Investment Inflow	$lnFD{I}_{i,t}$	$\mathrm{In} \mathrm{the} \mathrm{year} t$$, \mathrm{the} \mathrm{logarithm} \mathrm{of} \mathrm{total} \mathrm{foreign} \mathrm{investment} \mathrm{inflow} \mathrm{of} \mathrm{the} \mathrm{host} \mathrm{country} i$
Control variables Other Variables	Total population	$lnPo{p}_{i,t}$	$\mathrm{In} \mathrm{year} t$$\mathrm{the} \mathrm{logarithm} \mathrm{of} \mathrm{the} \mathrm{total} \mathrm{population} \mathrm{of} \mathrm{the} \mathrm{host} \mathrm{country} i$
	The natural resource output ratio	$Natura{l}_{i,t}$	$\mathrm{Natural} \mathrm{resource} \mathrm{output} \mathrm{ratio} \mathrm{of} \mathrm{the} \mathrm{host} \mathrm{country} i \mathrm{in} \mathrm{year} t$
	Business Freedom Index	$Business freedo{m}_{i,t}$	$\mathrm{In} \mathrm{year} t$$\mathrm{Business} \mathrm{Freedom} \mathrm{Index} \mathrm{of} \mathrm{the} \mathrm{host} \mathrm{country} i$
	Unemployment rate Number of cooperative area construction Gross Domestic Product Total workforce Investment Level Industrial development level Resident consumption level Trade Scale	$Ue{m}_{i,t}$ $Zone{s}_{i,t}$ ${\mathrm{lnGDP}}_{i,t}$ ${\mathrm{lnLabor}}_{i,t}$ $Investmen{t}_{i,t}$ $Industr{y}_{i,t}$ $Consum{e}_{i,t}$ $lnTrad{e}_{i,t}$	$\mathrm{In} \mathrm{year} t$$\mathrm{unemployment} \mathrm{rate} \mathrm{of} \mathrm{host} \mathrm{country}i$ $\mathrm{In} \mathrm{year} t$$\mathrm{number} \mathrm{of} \mathrm{cooperative} \mathrm{zones} \mathrm{built} \mathrm{in} \mathrm{host} \mathrm{country} i$ $\mathrm{The} \mathrm{logarithm} \mathrm{of} \mathrm{the} \mathrm{GDP} \mathrm{of} \mathrm{the} \mathrm{host} \mathrm{country}i$$\mathrm{in} \mathrm{year} t$ $\mathrm{The} \mathrm{logarithm} \mathrm{of} \mathrm{the} \mathrm{total} \mathrm{workforce} \mathrm{of} \mathrm{the} \mathrm{host} \mathrm{country} i$$\mathrm{in} \mathrm{year} t$ $\mathrm{The} \mathrm{ratio} \mathrm{of} \mathrm{gross} \mathrm{capital} \mathrm{formation} \mathrm{to} \mathrm{GDP} \mathrm{in} \mathrm{host} \mathrm{country} i$$\mathrm{in} \mathrm{year} t$ $\mathrm{The} \mathrm{ratio} \mathrm{of} \mathrm{industrial} \mathrm{value} \mathrm{added} \mathrm{to} \mathrm{GDP} \mathrm{in} \mathrm{the} \mathrm{host} \mathrm{country} i$ $\mathrm{in} \mathrm{year} t$ $\mathrm{The} \mathrm{ratio} \mathrm{of} \mathrm{gross} \mathrm{domestic} \mathrm{consumption} \mathrm{to} \mathrm{GDP} \mathrm{in} \mathrm{the} \mathrm{host} \mathrm{country} i \mathrm{in} \mathrm{year} t$ $\mathrm{The} \mathrm{logarithm} \mathrm{of} \mathrm{total} \mathrm{import} \mathrm{and} \mathrm{export} \mathrm{trade} \mathrm{of} \mathrm{the} \mathrm{host} \mathrm{country} i$$\mathrm{in} \mathrm{year}t$

Data source: data related to overseas economic and trade cooperation zones are compiled based on official information from the CCPIT Overseas Industrial Park Information Service Platform and the 1992–2018 China Overseas Industrial Park Information Dataset (Humei Li, 2019), while data on other variables are obtained from the World Bank database.

below.

Considering the availability and reliability of the data of each variable, the macro data of 59 countries along the “One Belt and One Road” from 1998 to 2017 are finally selected as the samples in this paper, and the descriptive statistics of each variable used in this paper are shown in

Table 2. Results of descriptive statistics of model variables.

Variables	Obs	Mean	Sd	Min	Max
lnPGDP	1100	8.224345	1.367956	4.928473	11.35131
lnFDI	1108	19.94525	4.641675	0	24.51685
lnPop	1112	16.21053	1.563225	12.77535	21.01493
Natural	1100	8.864232	13.50604	0.0003131	86.45256
Businessfreedom	1112	63.84326	13.78653	20	100
Uem	1112	8.030353	6.171586	0.14	37.25
Zones	945	0.1936508	0.640744	0	8
lnGDP	625	24.98311	1.564371	21.16022	28.68712
lnLabor	640	15.39023	1.594473	12.04539	20.01858
Investment	589	26.34869	8.317225	10.21701	69.52741
Industry	620	31.17721	13.53498	8.058403	74.81215
Consume	435	22.82407	8.419502	3.690861	59.48478
lnTrade	959	24.28576	1.578006	20.54168	27.4178

below.

4. Empirical Test

The purpose of this section is to analyze the empirical results of the study designed in Section 3, where Section 4.1 analyzes whether the cooperative zone promotes economic growth in the host country and conducts a parallel trend test for the benchmark regression; Section 4.2 performs a robustness test by replacing the explanatory variables to ensure the robustness of the findings; Section 4.3 uses a mediating effects model around the important factor of foreign investment to analyze the impact of the cooperative zone on the mechanism of economic growth in the host country; Section 4.4: Heterogeneity analysis based on the host country’s level of economic development, domestic business system, and type of cooperative zone.

4.1. Baseline Regression

Based on the multi-period DID model introduced in Chapter 3, this paper conducts a benchmark regression to verify whether the cooperative zone promotes the economic growth of the host country. (1) of

Table 3. Baseline regression results.

	(1) lnPGDP	(2) lnPGDP
Park	0.0656 ** (0.2680)	0.0620 ** (0.0247)
lnPop		−0.5760 *** (0.0545)
Natural		−0.0005 (0.0013)
Business freedom		0.0034 *** (0.0009)
Uem		−0.0200 *** (0.0033)
Constant term	7.4144 *** (0.0320)	16.6324 *** (0.8875)
Country fixed effects	yes	Yes
Time fixed effects	yes	Yes
Observations	1100	1100
${\mathit{R}}^2$	0.1433	0.3269

Note: **, and *** indicate 5%, and 1% significance levels, respectively.

below shows the effect of the cooperative zone on the economic growth of the host country when no control variables are put in, and (2) shows the effect of the cooperative zone on the economic growth of the host country when control variables are put in.

4.1.1. Baseline Regression Results

As shown in Table 3 (1) to (2) above, the core explanatory variable (Park) is significantly positive at the 5% level of significance regardless of whether control variables are included, i.e., building an offshore economic and trade cooperation zone significantly contributes to the economic growth of the host country. In the baseline regression (2), the control variables pass the 1% significance level test, except for the natural resource output ratio (Natural). The total population (lnPop) is significantly negative because the explanatory variable is chosen to measure economic growth in terms of domestic product per capita (lnPGDP). The larger the population size, the fewer benefits of economic growth are received per capita. Business freedom is significantly positive, indicating that a more open and accessible business climate and system contributes to economic growth. The unemployment rate (Uem) is significantly negative, indicating that higher employment levels will contribute to economic growth.

4.1.2. Parallel Trend Test

A prerequisite for applying the difference-in-differences method (DID) is to satisfy the parallel trend test. That is, the trend of the per capita domestic product in the host country before the establishment of the cooperative zone should not be significantly different from other countries that do not have a cooperative area. As shown in Figure 1, this paper conducted a parallel trend test with the first year establishing a cooperative zone in the host country as the base year (horizontal coordinate is 0 in Figure 1). The results show that the trend of changes in economic growth in the host country that established a cooperative zone (treatment group) and the countries that did not establish a cooperative zone (control group) before the establishment of the area is the same, and the parallel trend test is passed. There is a lag of about three years in the cooperative zone’s impact on the host country’s economic benefits. The effect of promoting economic growth in the host country is significantly enhanced from the fourth year after the establishment of the cooperative zone, indicating that it takes some time from the construction and operation of the cooperative zone to exert economic effects.

4.2. Robustness Tests

• Assuming that the cooperative zone is built before the actual year of construction

In this section, the year of establishment of the cooperative zone is set as 5, 7, and 10 years before the actual year of construction. Dummy variables for placebo tests are generated as $F5Par{k}_f$,$F7Par{k}_f$, and $F10Par{k}_f$; the samples of the year of actual construction and the year after were removed, and then regressions were performed.

Table 4. Placebo test for the hypothetical construction year.

	(1) lnPGDP	(2) lnPGDP	(3) lnPGDP
$\mathit{F}10\mathit{P}\mathit{a}\mathit{r}{\mathit{k}}_{\mathit{f}}$	−0.0273 (0.0289)
$\mathit{F}7\mathit{P}\mathit{a}\mathit{r}{\mathit{k}}_{\mathit{f}}$		−0.3477 (0.0259)
$\mathit{F}\mathit{5}\mathit{P}\mathit{a}\mathit{r}{\mathit{k}}_{\mathit{f}}$			−0.0318 (0.0258)
Control variables	yes	yes	Yes
Country fixed effects	yes	yes	Yes
Time fixed effects	yes	yes	Yes
Observations	518	660	747
${\mathit{R}}^2$	0.2451	0.2868	0.3179

(1) to (3) above show that none of the three newly generated dummy variables for the placebo test are significant, so the effect of certain unobservable potential factors on the host country’s economic growth can be excluded.

b.

Randomly generated pseudo-processing groups

A total of 27 of the 59 countries in the sample are host countries of cooperative zones. This paper randomly selects 27 countries from the sample as host countries of cooperative zones to form a pseudo-treatment group in the placebo test. The rest are set as countries without cooperative zone entry, and then the dummy variable $Par{k}_f$ is constructed for the placebo test. Under the condition that the pseudo-treatment group is randomly generated, i.e., $Par{k}_f$, the regression coefficients should be around the zero point; i.e., for $Par{k}_f$ there will be no effect on the dependent variable. To avoid the interference of other random events, after repeating the above procedure 500 times, it was found that for $Par{k}_f$ the mean value of the regression coefficient is close to 0, and the p-values are more significant than 0.1 (shown in the horizontal line in the Figure 2). The estimated coefficient of 0.062 (shown in the vertical line in the figure) is roughly an outlier among the estimated coefficients of the placebo test. Therefore, the placebo test passed, and the results of the above asymptotic difference-in-differences model are reliable.

c.

Substitution of core explanatory variables

Other variables remain unchanged, and the core explanatory variable (Park) is replaced with the number of overseas economic and trade cooperation zones constructed (Zones) for the robustness test of the benchmark regression. The results in

Table 5. Substitution of core explanatory variables.

	lnPGDP
Zones	0.0670 *** (0.0248)
Control variables	yes
Country fixed effects	yes
Time fixed effects	yes
Observations	1100
${\mathit{R}}^2$	0.3262

Note: *** indicate 1% significance levels.

below show that the replaced core explanatory variable (Zones) is significantly positive at the 1% significance level, indicating that the number of cooperative zones constructed significantly impacts the host country’s economic growth.

d.

Changing the combination of variables and adjusting the sample time

The core explanatory variable (Park) is kept unchanged while replacing the combination of dependent and control variables and adjusting the sample period from 2010 to 2019.

Specifically, the explained variables are replaced with the gross domestic product (lnGDP), the control variables are replaced with total labor force (lnLabor), the share of gross capital formation represents the level of investment, the percentage of industrial value added represents the level of industrial development (Industry), and the share of total expenditure represents the level of consumption (Consume).

As shown in

Table 6. Replacing the combination of variables and adjusting the sample time.

	lnGDP
Park	0.0577 * (0.0308)
Control variables	yes
Country fixed effects	yes
Time fixed effects	yes
Observations	423
${\mathit{R}}^2$	0.5735

Note: * indicate 10% significance levels.

below, the core explanatory variable (Park) remains significantly positive at the 10% significance level.

The results of the baseline regression, through the above series of robustness tests, lead to the robust conclusion that the establishment of overseas economic and trade cooperation zones along the “One Belt and One Road” significantly promotes the economic growth of the host countries.

4.3. Analysis of Influence Mechanisms

As shown in

Table 7. Impact of foreign investment inflows on economic growth.

	(1) lnPGDP	(2) lnPGDP
lnFDI	0.0044 *** (0.0017)
Park		0.0620 ** (0.0247)
Control variables	yes	yes
Country fixed effects	yes	yes
Time fixed effects	yes	yes
Observations	1098	956
${\mathit{R}}^2$	0.3318	0.8249

Note: **, and *** indicate 5%, and 1% significance levels, respectively.

below, foreign investment inflow (lnFDI) and foreign economic and trade cooperation zone (Park) promote the host country’s economic growth. To further investigate the relationship between them and the mechanism of enabling the host country, this paper takes foreign investment inflow (lnFDI) as a mediating variable and designs a mechanism analysis model as follows:

$$Y_{i,t}=\alpha +{\beta }_{1}Par{k}_{i,t}+\phi x_{i,t}+{\mu }_i+v_t+{ϵ}_{i,t}$$

(2)

$$lnFD{I}_{i,t}=\alpha +{\beta }_{2}Par{k}_{i,t}+\phi x_{i,t}+{\mu }_i+v_t+{ϵ}_{i,t}$$

(3)

$$Y_{i,t}=\alpha +{\beta }_{3}Par{k}_{i,t}+{\delta }_{1}lnFD{I}_{i,t}+\phi x_{i,t}+{\mu }_i+v_t+{ϵ}_{i,t}$$

(4)

Model (2) is the baseline regression model described in the previous section, model (3) is the regression model of the cooperative zone (Park) on foreign investment inflows (lnFDI), and model (4) is the regression model of the cooperative zone (Park) and foreign investment inflows (lnFDI) on economic growth, as shown in

Table 8. Analysis of intermediary effects.

	(1) lnPGDP	(2) lnFDI	(3) lnPGDP
Park	0.0620 ** (0.0247)	1.2602 *** (0.4509)	0.0549 ** (0.0247)
lnFDI			0.0041 ** (0.0017)
Control variables	yes	yes	yes
Country fixed effects	yes	yes	yes
Time fixed effects	yes	yes	yes
Observations	1100	1098	1098
${\mathit{R}}^2$	0.3269	0.0245	0.3296

Note: **, and *** indicate 5%, and 1% significance levels, respectively.

below.

As shown in Table 8 above, the results of (1) and (2) indicate that the cooperative zone (Park) has a positive effect on both economic growth and foreign investment inflows (lnFDI), which pass the significance level test at 5% and 1%, respectively. The results of (3) show that when the baseline regression includes both the cooperative zone (Park) and foreign investment inflows (lnFDI), both are still significantly positive at the 5% level of significance.

Referring to the method of Baron and Kenny [34] and the mediating effect test procedure mentioned by Zhonglin Wen (2014) [35], the mediating effect test chosen in this paper is: ${\beta }_1$ in (1), ${\beta }_2$ in (2), and ${\delta }_1$ in (3) are significant, but ${\beta }_3$ in (3) is not significant, then the direct effect is determined to be insignificant, and only the mediating effect exists; ${\beta }_1$ in (1), ${\beta }_2$ in (2), and ${\beta }_3$ and in (3) are significant, then continue to examine the relationship between ${\beta }_2{\delta }_1$, and ${\beta }_3$, and if the sign is the same, it is determined that there is a partial mediating effect, and if the sign is different, it is determined that there is a masking effect.

Combined with the results in Table 8, it is determined that foreign investment inflows (lnFDI) play a partial intermediary effect, i.e., the overseas economic and trade cooperation zones promote the economic growth of the host country by expanding foreign investment inflows in the host country.

4.4. Heterogeneity Analysis

4.4.1. Based on the Different Economic Characteristics of the Host Country

Host countries have different economic characteristics that may affect the cooperative zone’s economic boosting effect. This paper includes the interaction term of the core explanatory variable (Park) with other variables in the benchmark regression to explore the heterogeneity of the cooperative zone in the economic boosting effect by observing the coefficients of the interaction term. In this paper, firstly, according to the classification criteria of country income levels released by the World Bank database, high-income, upper-middle-income, lower-middle-income, and low-income countries are numbered 4, 3, 2, and 1, respectively, to form a new variable income stratum (Icomegroup). Then the interaction term between the core explanatory variable (Park) and the income stratum (Icomegroup) is included in the benchmark regression; as shown in the following

Table 9. Analysis of interaction term heterogeneity.

	(1) lnPGDP	(2) lnPGDP
Park	0.6023 *** (0.1503)	0.6173 *** (0.1766)
Park * Icomegroup	−0.2111 *** (0.0502)
Park * Businessfreedom		−0.0088 *** (0.0028)
Control variables	yes	yes
Country fixed effects	yes	yes
Time fixed effects	yes	yes
Observations	1080	1100
${\mathit{R}}^2$	0.3018	0.3333

Note: * is multiply sign, *** indicate 1% significance levels.

(1), the coefficient of the interaction term is significantly negative, indicating that the economic boosting effect of the cooperative area is more potent in countries with lower income levels. It suggests that countries with more backward economic development will benefit more from the industrial transfer incidental to the cooperative zone, and the originally backward domestic industrial structure gets the opportunity of industrial upgrading, which brings more production and business activities to promote economic growth. The significant negative interaction term between the core explanatory variable (Park) and the Businessfreedom index in (2) indicates that in countries with less freedom to do business, depending on the policy support, cooperative zones can play the role of institutional substitution to make up for the deficiencies in the local business system, thus playing a more vital economic boosting role.

4.4.2. Based on Different Types of Cooperation Zones

According to the different leading industries of the cooperative zones, the cooperative zones are divided into agricultural cooperative zones, industrial cooperative zones, high-tech cooperative zones, logistics cooperative zones, and integrated industrial cooperative zones for group regression. As shown in

Table 10. Heterogeneity analysis based on the type of cooperative area.

	(1) Agricultural Cooperation Zone	(2) Industrial Cooperation Zone	(3) High-Tech Cooperation Zone	(4) Logistics Cooperation Zone	(5) Integrated Industrial Cooperation Zone
Park	0.1925 *** (0.0573)	0.1985 *** (0.0691)	0.1713 ** (0.0694)	−0.2143 (0.1335)	0.0214 (0.0399)
Control variables	yes	yes	yes	yes	yes
Country fixed effects	yes	yes	yes	yes	yes
Time fixed effects	yes	yes	yes	yes	yes
Observations	667	733	629	669	749
${\mathit{R}}^2$	0.3163	0.4066	0.3415	0.2771	0.3264

Note: **, and *** indicate 5%, and 1% significance levels, respectively.

(1) to (5), agricultural, industrial, and high-tech cooperative zones significantly contribute to the economic growth of the host country by passing the significance level test of 1%, 1%, and 5, and the impact of logistics zone and comprehensive industrial zone is not yet significant.

The development of these two types of zones can make full use of the comparative advantages of the host countries along “One Belt and One Road” in terms of resources and labor force so that the vast land and abundant labor force better participate in the local economic construction. Moreover, these zones align with China’s investment demands in the context of increasing resource pressure and overcapacity and are essential zones for mutual benefit and win-win cooperation. High-tech cooperation zones bring capital and technology to the host countries along the route in the global technological revolution context and boost the host countries’ economic growth. Logistics zones and comprehensive industrial zones have not yet played a significant role in promoting economic growth, probably because the development of these two types of zones is closely related to the overall development and infrastructure construction along the “One Belt and One Road”. For example, the development of logistics zones depends on the overall economic and trade activities along the “One Belt and One Road,” smooth roads, and the economic freedom of the host countries, while the diversified development of integrated industrial parks depends more on the promotion of the “One Belt and One Road” high-quality construction.

4.5. Conclusions of the Analysis

Based on the three research hypotheses proposed in this paper, the main findings from the empirical tests are as follows.

First, the findings of the benchmark regression: Based on the data of 59 countries along the “Belt and Road” from 1998 to 2017, this paper assesses the impact of the establishment of overseas economic and trade cooperation zones on the economic growth of host countries by using the progressive double-difference method. The results show that establishing overseas economic and trade cooperation zones along the “One Belt and One Road” can significantly promote the economic growth of host countries, and the findings pass the parallel trend test and various robustness tests.

Second, the findings of the mechanism analysis: This paper uses the mediating effect model to explore the specific influence mechanism of cooperative zones to promote the economic growth of host countries and finds that cooperative zones can achieve an economic boost by attracting foreign investment inflows. During the construction process of the zone, we should continue to strengthen its ability to attract foreign investment and boost the shared prosperity along the “One Belt and One Road”.

Third, the findings of heterogeneity analysis: This paper finds that the economic boosting effect of cooperative zones on host countries is heterogeneous. Cooperative zones have a more powerful economic boosting effect on countries with lower income levels and poorer business environments. Countries with more backward economic development and poorer business environment can benefit more from the development and construction of cooperative zones, indicating that cooperative zones give full play to the advantage of institutional substitution and narrow the gap between rich and poor countries. For example, Sutherland (2020) investigates how the One Belt and One Road Initiative and overseas economic and trade cooperation zones affect Chinese outward FDI and find that the institutional vulnerability of host countries positively affects Chinese outward FDI. The findings suggest that the institutional vulnerability of the host country has a positive effect on Chinese OFDI and that the Belt and Road Initiative will bring economic growth to the host country [36]. Ningning Zhang (2020) used the outward direct investment events of A-share listed companies in countries along the “One Belt and One Road” as the research object and found that the institutional environment of the host country hurts investment, while the overseas economic and trade cooperation zone can moderate the institutional environment of the host country, thus weakening its negative impact [37]. In future development, we should learn from past successful experiences, further strengthen the communication and cooperation between China and the host government, and maintain and enhance the advantage of institutional substitution.

Different types of zones have various leading industries, and their economic boosting effects on the host country are also different. Specifically, agricultural and industrial zones have the most substantial economic boosting effect by the host country’s comparative advantages in resources and labor and are in line with China’s current investment demands. Jinye Li (2019) used a systematic GMM approach to study the impact of overseas parks on Chinese OFDI and found that processing, manufacturing, and resource utilization parks have the most significant promotion effect on Chinese OFDI [38]. High-tech zones have also played a positive role in local economic development with the injection of capital and technology. In addition, the economic boosting effect of the logistics zone and the comprehensive industrial zone is not yet significant but will be effective in the future when the quality construction of “One Belt and One Road” is further promoted. Especially the logistics zone, an essential node of the “One Belt and One Road,” will provide logistics and transportation support for the economic and trade activities along the route and inject new vitality into the economic development of the host countries along the route.

5. Further Discussion

As an essential undertaking point of China’s “One Belt and One Road” strategy, the overseas economic and trade cooperation zones promote the economic growth of the host countries and provide a boost to the shared prosperity of China and the countries along the “One Belt and One Road,” and also provide a reference for international economic and trade cooperation in the new era.

According to the findings of the mechanism analysis in this paper, attracting foreign investment inflows is an important channel through which the overseas economic and trade cooperation zone contributes to the economic growth of the host country. In contrast, trade, one of the troika driving economic growth, has not been studied in the mechanism analysis in this paper. As shown in

Table 11. Trade size analysis.

	(1) lnTrade	(2) lnPGDP
Park	0.1239 * (0.0653)
lnTrade		0.5125 *** (0.0758)
Control variables	yes	yes
Country fixed effects	yes	yes
Time fixed effects	yes	yes
Observations	956	956
${\mathit{R}}^2$	0.4214	0.8249

Note: *, and *** indicate 10%, and 1% significance levels, respectively.

above, the establishment of an overseas economic and trade cooperation zone has a positive effect on the expansion of trade in the host country at the 10% significance level, and the development of trade promotes the economic growth of the host country at the 1% significance level. Specifically, establishing an overseas economic and trade cooperation zone brings foreign investment inflows and trade expansion to the host country, both of which positively affect the host country’s economic growth. However, foreign investment inflows also contribute to trade expansion in the host country. Since foreign investment inflows bring indirect trade effects, the mechanism of trade scale cannot be examined simply by using the intermediary effect model as in the previous section. How to clarify and specify the relationship between foreign economic and trade cooperation zones, foreign investment inflows, trade expansion, and host country economic growth is a problem that has not been solved in this paper and is also a direction worth further investigation in the future.

Policy communication and complementary advantages between China and the countries along the “One Belt and One Road” are the key to the successful operation of overseas economic and trade cooperation zones. The results of the heterogeneity analysis in this paper show that countries with lower levels of economic development and poorer business environment have achieved more significant economic growth by taking advantage of the institutional substitution of the overseas economic and trade cooperation zones, which confirms that policy communication and support between the governments of both sides is an important guarantee for win-win international economic and trade cooperation. In the long run, the institutional advantages of the overseas economic and trade cooperation zones will also bring insights for the host countries to carry out deep institutional reforms. Among the various types of zones, agricultural and industrial zones play the most significant role in boosting the economy. These two types of zones deeply integrate China’s comparative advantages in capital and technology and the comparative advantages in resources and labor of host countries along the “One Belt and One Road.” From the perspective of the needs of both sides, on the one hand, China needs to transfer its industries, further develop its international market and build a new global circulation; on the other hand, the host countries along the “One Belt and One Road” also have the need to upgrade their industries, release their domestic surplus resources and labor force, and find economic growth momentum. The two sides can complement each other in terms of advantages and match each other in terms of needs. On this basis, the overseas economic and trade cooperation zones have become an important platform for international economic and trade cooperation between China and the host countries along the “One Belt and One Road” They will release more potential in the future.