The talent and firm sorting under free trade port policies

Abstract

This paper explores how location-based policies reshape local labor market structure. Our study investigates the impact of a knowledge-oriented policy—the Hainan Free Trade Port (FTP) policy—on firm and individual-level choices, particularly how it attracts innovative companies and high-quality labor to Hainan. Employing business registration data spanning 2001-2022 and utilizing a difference-in-differences approach, we empirically reveal the policy’s impact on Hainan’s industrial upgrading, evidenced by more significant high-tech firm entry in skill-intensive sectors relative to labor-intensive sectors after policy implementation. Using job posting data from major recruitment platforms, we further document increased job openings at high-tech companies relative to non-high-tech companies following policy introduction. Our analysis shows this job creation particularly targets candidates with at least a bachelor’s degree, and high-tech firms attract high-skilled human capital through enhanced welfare benefits rather than increased monetary compensation. Leveraging our unique access to the Yazhou Technology Zone, we conduct a survey of over 20,000 employees to investigate highly skilled professionals’ perspectives on the policy and their subsequent location choices. The survey reveals three key differences among high-tech employees compared to non-high-tech counterparts: higher perceived attractiveness of the FTP policy, greater propensity to relocate to Hainan, and stronger confidence in their development potential within the FTP. These findings provide direct evidence of talent migration supporting the development of Hainan’s high-tech industry and offer insights for future policy refinement to retain talent.