Abstract: Improving the level of regional opening-up is an important approach to advancing high-quality economic development. As China’s core policy for exploring the development of regional open economy, the construction effectiveness of Pilot Free Trade Zones (hereinafter referred to as “FTZs”) urgently needs to be evaluated. Based on the theories of institutional change, transaction cost, and location, this paper uses panel data from 30 Chinese provinces spanning 2012 to 2022 to construct a multi-period Difference-in-Differences (DID) model, as well as mediating and moderating effect models. It empirically examines the impact of FTZs on the development of regional open economy and their functional mechanisms, and conducts heterogeneity analysis from the perspectives of location and establishment batches. The findings are as follows: (1) The construction of FTZs significantly promotes the development of regional open economy. (2) In terms of functional mechanisms, FTZs drive the development of open economy by enhancing the level of regional technological innovation and financial support (mediating effect); a sound business environment can positively strengthen the promotional role of FTZs (moderating effect). (3) Heterogeneity analysis reveals that the promotional effect of coastal FTZs is significantly stronger than that of border and inland FTZs; the first batch of FTZs exerts a greater promotional impact than subsequent batches. Based on these findings, policy recommendations are proposed, including constructing FTZs in line with local conditions, focusing on improving the level of technological innovation and financial support within the zones, and continuously optimizing the business environment.