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Export Processing Zones: Free Market Islands or Bridges to Structural Transformation?
Abstract
Do export processing zones draw local manufacturers into world markets – and thereby engender broader market reform – by way of a ‘demonstration effect’? The answer is likely (i) to be determined, not in the EPZ, but in the host country's national customs area, and (ii) to vary systematically with the size of the relevant market. While manufacturers from large economies are able to compete in world markets, and are therefore susceptible to the demonstration effect, their counterparts from small economies are unable to do so, and are therefore intractable. Thus, the nature of the EPZ life-cycle, like the legacy of import-substituting industrialisation, is in no small measure a function of market size.
... This in turn can support a more broad-based industrialization strategy. Schrank (2001) for example defines the life-cycle of a successful EPZ as consisting of three phases: i) luring foreign investors; ii) demonstrating the feasibility of international competition; and iii) drawing local manufacturers into world markets. Johansson and Nilsson (1997) use a gravity model to show that EPZs have increased total exports of several developing countries. ...
... This in turn depends on the capabilities of domestic firms. Schrank (2001) compares the experiences of South Korea and the Dominican Republic, both of which introduced EPZs at the time when their per capita GDP was identical. South Korea used 'a process of constant integration' to transform its EPZs into major markets for locally manufactured capital and intermediate goods. ...
... Many upstream sectors simply did not exist and those that did failed to meet world standards in price and quality. Schrank (2001) found similar outcomes in Mexico, where the Border Industrialization Program (BIP) created a series of free trade areas along the US frontier in 1965. In 1975 the government extended the BIP's incentives to export-orientated firms located beyond the frontier. ...
... A signifi cant, positive eff ect of proximity to large markets is also confi rmed by the World Bank (2017), which uses panel data tools, and by Schrank (2001). Both Farole (2011) and the World Bank (2017) fi nd no eff ects of zone business climate. ...
... Considering the impact on employment, while Aggarwal (2006) and Bondonio and Engberg (2000) fi nd no eff ect of fi scal incentives on regional diff erences in employment, Duranton et al. (2011) demonstrate opposite results (Table 1). Aggarwal, 2006;Farole, 2011;Schrank, 2001;World Bank, 2017 --Infrastucture quality -A g g a r w a l , 2 0 0 6 -Labour costs -A g g a r w a l , 2 0 0 6 -Tax rate -Employment: Aggarwal, 2006;Bondonio and Engberg, 2000 Investment: Mayer et al., 2012;Aggarwal, 2006;Rathelot and Sillard, 2008;Devereux et al., 2007;Crozet et al., 2004;employment: Duranton et al., 2001 Number of operating enterprises Devereux et al., 2007;Mayer et al., 2012Aggarwal, 2006Source: the authors As regards the impact of fi rms' concentration on SEZ development, the predominant view is that fi rms tend to agglomerate, i.e., SEZ with larger numbers of already operating enterprises have a higher chance of attracting subsequent investors. Such a phenomenon is confi rmed by Devereux et al. (2007), who analysed eff ects of policy aimed at attracting investment into underdeveloped regions in the UK. ...
Using a unique firm-level data for Polish Special Economic Zones (SEZ) to estimate a set of panel data models we find that both employment and investment growth in SEZ are driven mainly by labour market characteristics of zone-hosting regions, while other factors (including market access, zone business climate and firms' concentration) play a less important role. Firms choose their locations based on labour availability rather than on labour costs. Moreover, they pay particular attention to availability of low-skilled rather than high-skilled labour. As far as tax incentives are concerned, their predictability matters more for SEZ development than their generosity.
... The extent to which backward linkages have been a concrete objective of EPZ development varies between EPZs and between countries, though they appear to be the subject of increasing attention by those designing EPZs. In some cases, use of domestically produced intermediate goods is encouraged by host country governments, but the extent to which this happens in practice is difficult to determine (see also McIntyre et al 1996;Schrank, 2001). It has been stated in the literature (e.g. ...
... In cases where EPZ development have been located in remote, underdeveloped areas considered by host governments to be in need of economic development, few linkages have materialize. Schrank (2001) takes further the argument of host economy characteristics as a precondition for backward linkages and states that the achievements of NIC EPZs are unlikely to be replicated in other developing countries. These achievements, the argument goes, depended on the attitudes and capabilities of domestic suppliers, not of TNCs. ...
Executive Summary
1. Export Processing Zones (EPZs) in their traditional form (fenced-in industrial
parks where export-oriented investors enjoy free port status) emerged in the period
1950-75 and first became widely adopted between 1975-85. Currently there are
more than 3,500 EPZs in 130 countries. EPZs have been mainly but not exclusively
targeted at attracting foreign direct investment (FDI) in labour-intensive manufacturing;
however, an increasing number of EPZs are targeted at capital-intensive
manufacturing or services, and/or are also open to domestic investor participation.
Some newer EPZs also depart from the traditional model by embracing wider
regions.
2. Most of the first EPZs were established in Asia, and Asian EPZs have also
witnessed the highest level of innovation in respect of sectoral focus, geographical
flexibility and openness to domestic enterprise. A number of the Asian countries
adopting EPZs in the early stages later became the so-called Newly Industrialised
Countries (NICs).
3. The World Bank and some bilateral donors provided extensive support to EPZs
in the 1980s and early 1990s, with the aim not only of promoting developing
country export growth but also of creating what was seen as a bridgehead to more
liberal trade regimes. Since around 2000, as trade liberalisation has become widely
accepted as a norm, multilateral donors have become more cautious in their
approach to EPZs, recognising that these may be promoted by some developing
countries as an alternative to wider trade and business environment reforms.
Furthermore, it appears that a majority of World Bank-supported EPZs have been
unsuccessful in their own terms.
4. The potential impacts of EPZs can be grouped under the headings of static and
dynamic effects. Static effects may include increasing and diversifying exports,
increasing FDI and increasing employment. Dynamic effects may include promoting
technology, skill transfers and backward linkages with the host economy. The
second group of impacts is difficult to quantify. A more serious problem however is
that it is difficult to distinguish the effects of EPZs from those of other factors
influencing the same variables. This problem is compounded by the fact that EPZs
differ considerably amongst themselves. Finally, there is a general lack of good timeseries
data on impacts, even in respect of static effects, apart from for a few EPZs
mainly in larger Asian countries. All these factors are reflected in a literature that is
overwhelmingly dominated by case studies.
5. Having said this, the record of EPZs in attracting FDI is highly uneven. A sample
of 17 countries with EPZs shows huge variations in levels of investment attracted
by EPZs, and includes five countries where the EPZ investment stock is $300 million
or less. There are similar variations in terms of export performance and
employment, as well as a large number of cases where investment and employment
in, and exports from EPZs have been extremely low. In general, EPZs in Asia and
some other countries with large populations appear to have had larger impacts than
those elsewhere, especially in relation to those in Africa.
6. Evidence on EPZs’ dynamic effects is too patchy to draw strong conclusions,
although there is a suggestion that dynamic effects are probably low for traditional
EPZs. This is especially the case if they are dominated by foreign-owned labour
intensive manufacturing in globalised sectors, and/or where EPZs operate as
enclaves in countries with otherwise low levels of industrialisation. Instances of
dynamic effects appear to be more frequent where EPZs are found in middleincome
countries and where the competitiveness of EPZ enterprises does not
depend upon the incentive package and cheap labour costs alone.
7. Meanwhile, an extensive literature has developed concerning labour conditions in
EPZ. While a majority of this literature is critical of EPZ labour conditions, there is
little evidence that these are any worse than in their host countries more generally.
Some aspects of labour conditions, notably wage rates, may be actually higher than
in host economies. On the other hand, there does appear to be evidence that labour
organisations are frequently repressed in EPZs.
8. One of the reasons for the apparent decline in the static effects of creating
additional EPZs in their traditional form has been referred to already. This is the
widening adoption of trade liberalisation by developing countries, which reduces the
advantages to operators of schemes in which remission of import duty on imported
inputs and raw materials play a large role. For developing countries as a group,
average tariff levels have declined by more than half since the first large wave of
EPZs in the 1980s, and in most cases their economies have experienced
liberalisation along other dimensions too.
9. A second reason for the declining effectiveness of traditional EPZs relates to
parallel changes in the quality of developing country infrastructure and the efficiency
of customs clearance procedures. In respect of infrastructure, per capita consumption
of electric power and connection to telecoms systems have improved, often
dramatically, in all the sample of 17 developing countries referred to earlier for
which time series data is available since 1980. Over the same period, improvements
have occurred in the productivity of rail freight systems for six of the 10 members
of the sample for which time series data is available. There was also an improvement
for all countries in the sample for which time series data was available but one in the
quality of highway provision. As for customs efficiency, time series data on an
indirect measure suggests significant improvements since 1980 in Asia and Latin
America (though not Africa).
10. This is by no means to cast doubt on export growth and diversification as a
developing country growth strategy, subject to certain qualifications. Growth in
exports of manufactures directly contributes to GDP growth, though not necessarily
at unity. Furthermore, the growing tendency for manufacturing industries to be
organised in global value chains in which production is outsourced to developing
countries, means that developing country manufacturing exports should continue to
grow even if demand in developed countries slows down. This is as a result of
production in developing countries replacing that in developed ones.
11. The qualifications to these trends that may be noted do not concern obstacles to
growth of developing country exports. Rather they concern declining terms of trade
for a range of labour-intensive manufactures that developing countries specialise in.
This decline is most evident in relation to clothing, although indirect evidence suggests
that it applies also to consumer electronics components and finished goods.
This points toward the importance of new competitiveness factors in developing
country manufacturing, in relation to which the traditional EPZ incentive package is
largely irrelevant.
12. While it is sometimes argued that a number of the incentives offered to EPZ
investors are incompatible with WTO rules, both most of the measures incorporated
in traditional EPZs and those that form part of later generations of export
growth and diversification policy are actually permitted under these rules.
Furthermore, a total of 65 developing countries members of WTO may legally
provide any type of export incentive, including these that are otherwise illegal under
WTO rules, until 2015.
13. Recognition of the decreasing effectiveness of traditional EPZs, as well as of the
emergence of new challenges to developing country exporters, poses with some
acuteness the question of alternatives to EPZs. It is inappropriate to seek a general
answer to this question. Rather, the answers given should take into account the
nature of the main economic development problems facing a given country. These
may be poor governance, or macro-economic instability and associated high costs of
finance, or inadequate human capital formation, or (in the case of land-locked
countries) inadequate infrastructure in the wider region – or some combination of
these. Additionally, even in countries where problems of this kind have been largely
overcome, domestic factor prices may not favour export competitiveness. If issues
of this kind are not addressed first then, while a traditional EPZ may yield some
static gains these will be difficult to sustain. Hence, support to such arrangements
will almost certainly be a second-best option.
14. In those situations where all these problems are being addressed, then the issue
is rather adjusting export growth and diversification policies to meeting the new
competitive challenges. Here, answers are harder to come by. They probably include
interventions targeted at specific aspects of competitiveness, including inducing
firm-level adaptation and innovation. Such interventions moreover make more
sense if targeted at all operators in a given sector or host economy, rather than
foreign investors alone. They may include, for example, government support to
exchange rate competitiveness, interventions on credit and interventions on
technology. A cautious approach is advisable in these areas however, in order to
avoid free riding.
15. Most countries in Sub-Saharan Africa fall into the category where the main
economic development problems are far from resolved. Simultaneously, it is widely
recognised that they are falling more and more behind Asia as far as trade competitiveness
is concerned. This has led some recent commentators, notably Collier
(2007), to argue that it is worth providing some support to an improvement in this
competitiveness even when giving overall priority to resolving problems such as
governance or macro-economic instability. Rather than proposing additional
measures such as EPZs for Sub-Saharan African countries to adopt to this end,
Collier suggests instead that developed countries should develop a new system of
preferential market access earmarked for Africa. This suggestion reflects a broader
trend amongst economists for a renewed of interest in the potential of trade
preferences, dating from the widening recognition around 2004-05 that the WTO
Doha Round (even if completed) is unlikely to provide Africa with meaningful
welfare gains. The precise make-up of such a new generation of preferences remains
to be elaborated.
... Early work includes Wall (1976), Ping (1979), and Basile and Germidis (1984). Post-1990 work includes Rhee and Belot (1990), Alter (1991), Romer (1993aRomer ( , 1993b, Kaplinsky (1993), Willmore's (1995) response, Kaplinsky's (1995) reply to Willmore, Johansson (1994), Johansson and Nilsson (1997), Kusago andTzannatos (1998), Madani (1999), Radelet (1999), Tekere (2000), Cling and Letilly (2001), Schrank (2001), Aggarwal (2005Aggarwal ( , 2006Aggarwal ( , 2007Aggarwal ( , 2010, Milberg (2007), and Tyler and Negrete (2009). These works have spanned the theoretical divide, as will be seen below. ...
... They come to three main conclusions: (1) EPZs have worked mostly in a few emerging markets in Asia and South America and, with the exception of a handful of countries, have not succeeded in LDCs; (2) the experience of these emerging markets shows that EPZs are, at best, one of several components of export-oriented industrialization, and one with limited effect on skills and economic value added; and (3) EPZs are undermined by changes in trade rules, notably the WTO's rules on subsidies and countervailing measures, 12 the end of the MFA, 13 and regional trade agreements. Schrank (2001) asks who is right in the EPZ debate-those who argue "that they offer a gradual 'two-track' alternative to neoliberal 'shock therapy'" (p. 224) or those who believe that they endanger reform by creating liberal enclaves that allow governments to continue protecting inefficient domestic economies. ...
... Traditional EPZs offer companies with export destinations the form of exemption from import duties on imports of capital goods and raw materials, provision of labour with effective wages, and other fiscal facilities (Engman, Onodera & Pinali, 2007). Schrank (2001) states that EPZs can unite the needs of a developing country to create jobs and exchange rate stability with foreign industries that require imported goods and local goods to be produced to meet the global market. The more advanced EPZs manage the area by making it part of the State's policy which ultimately uses EPZs as a tool for economic reform. ...
This study examines the role of government regulation on competitiveness and its impact on the performance of companies that have been designated as bonded zones. Bonded zone regulations provide several conveniences such as: delaying the payment of taxes on imported goods, accelerating customs duties, and exempting import permits are expected to improve company performance. Until 2019, 493 textile companies had been designated as bonded zones in Indonesia. But in reality, there are still companies designated as bonded zones that have low financial performance. This research uses 204 textile companies designated as bonded zones in Indonesia. The data were obtained from questionnaires filled out by company representatives. Data were analysed using a statistical test tool. This study finds that government regulations have a greater influence on the performance of textile companies mediated by power competition. The government must make regulations that can support increased competitiveness to improve company performance.
... Thus, EPZs may act as engines for the further trade liberalization of trade policies in countries hosting EPZs. Thus, they work as a conduit for further trade liberalization in countries like Brazil, where the share of trade over GDP is one of the world's lowest, around 39% (Schrank, 2001;Richardson, Harrison, & Campling, 2017;World Bank, 2023 ...
... Katma değerli ürün ticareti ve teknoloji transferi noktasında ise başarılı serbest bölgeler yurtdışından gelen teknolojileri benimseyerek ve yabancı yatırımı çekerek yerel Ar-Ge kapasitelerini oluşturmuştur (White, 2011, s. 190-191). Ancak bölgeye yerleşen firmaları ara malı tedarik etmeye teşvik etmek bir başlangıç noktası olduğundan yerel üreticileri yabancı yatırımcının mevcut tedarikçilerinin sağlayabileceği kalite, hız ve tutarlılık düzeyine getirmek zaman almaktadır (Schrank, 2001). Bir diğer durum ise, serbest bölgelerin kurulumu üzerinedir. ...
İhracatı, yatırımları ve istihdamı artırmak, ithalatı kolaylaştırmak, yerli üretime katkı sunmak, teknoloji transferini sağlamak, bölgesel farklılıkları dengelemek hedefleri temelinde kalkınma politikası olarak uygulanan serbest bölgeler firmalara vergisel avantajların sunulduğu özel alanlardır. Bu çalışmanın amacı, Türkiye’nin serbest bölgelerinde vergisel avantajlarla desteklenen firmaların Türkiye’nin dış ticaretine ve istihdamına ne düzeyde katkı sağladığını ve bu değişkenler arasındaki ilişkiyi araştırmaktır. Bu çerçevede 2013.01-2022.05 yılları arasında aylık dönemler için derlenen veriler kullanılmıştır. Belirlenen değişkenlerle 7 farklı model kurularak Fourier ADL saklı eşbütünleşme testi yapılmıştır. Çalışmada vergisel avantajlara sahip serbest bölgeler ithalat-ihracatının, Türkiye’nin dış ticaret ve istihdam mekanizmasına katkısının zayıf olduğu görülmüştür. Bu çerçevede serbest bölgelerin hem uluslararası ticarete entegrasyonunun sağlanması hem de yerel ekonomide bölgesel farklılıklarının giderilmesi için daha iş birlikçi, yenilikçi ve nitelikli bir yapıya kavuşturulması ilkeleri temelinde vergisel, dış ticaret ve istihdama yönelik politika önerileri sunulmaya çalışılmıştır.
... These widespread tax engineering practices based on territorial and institutional arbitrage (Dörry, forthcoming) have been criticized and recently addressed by OECD member countries, while the so far limited impact of SEZs is controversially discussed in economic development, planning and geography (Frick et al., 2019). This includes questions whether and to what extent policy expectations can be met, and whether incentives primarily steer development to certain places in an overall zero-sum game (Schrank, 2001, Levien, 2011, Graham, 2004. Further challenges prevail, not only with regard to a sound conceptualisation of freeports as attempted in this paper, but also concerning empirical research to gain in-depth insights on their functioning and impact, given their inherently discreet business practices. ...
Freeports and special economic zones (SEZs) are established policy tools to attract foreign investment at specific locations, based on the de-coupling of sovereignty and territory. As a result, they emerged not only in developmental contexts, but also in tax havens and financial centres. Recently, freeports and SEZs have shifted from responding to global competition for spaces best suited to attract tangible manufacturing to responding to competition for spaces with best conditions to enable value extraction and wealth shielding. We develop the argument on the emerging industry of ArtTech and new ‘fine art freeports’ that thrive on two core social practices: fracturing property rights to enhance financial liquidity and trading activity in highly exclusive fine-art markets, and offshoring – or zoning – to exploit freeport-facilitated relations for market making and rent-seeking. Besides such practices to make and game markets, freeports supply important physical infrastructure for fine-art technical and custody services that precondition any form of value creation. As such, freeports are important spaces for policy experimentation. Contrary to the conventional belief about free zones in general and freeports in particular, however, their economic impact remains limited. We explain this by conceptualising freeports as ‘zones’ defined or designed by specific processes of ‘zoning’ that link their multiple geographies. We conclude that freeports are no sites of exception but spaces that help legitimise novel institutional and economic arrangements emergent in the economy at large.
... In world practice, a free port is the territory of the port with its berths, warehouses, utility rooms and adjacent water area, not included the customs territory of the country. The functioning of the free port is based on the complete or partial absence of customs duties and taxes, a preferential regime for the import, export, and re-export of goods (Chiu et al., 2011;Schrank, 2001). In Russia, under the free port, there is a part of the territory of the Primorsky Krai, on which measures of state support for entrepreneurial activity are established (Nikolaev and Grigoryeva, 2016). ...
In the Far East of Russia, economic development has dramatically slowed down for the past 30 years. The federal government seeks new methods to attract investments into the regions, stimulate entrepreneurial activity, and boost economic growth. This paper critically evaluates state policies that involve the active implementation of Special Economic Zones, Territorial Development Zones, Vladivostok Free Port, and the Territories of Advanced Social and Economic Development. Research is based on the interviews with the state authorities from the regions of Russia and thorough investigation of the state policies, legislation, and government reports. This study suggests three conclusions. First, there is an excessive amount of state development policies, which is the result of competition among different federal ministries. Second, there is no evidence of innovative activity or productivity growth within those economic zones. Finally, methods to assess the effectiveness of the regional policies are undeveloped and lack clarity. Recommendations for further research are given at the end of the paper.
... ). Dass bedeutet letztlich, dass die Behauptung einer regionalen und nationalen sozioökonomischen "Entwicklung" durch Kapitalmodernisierung prinzipiell hinterfragt werden muss(McGrath 2017). Entwicklung" zurück(Warr 1989;Schrank 2001). Betont wird, dass Sonderwirtschaftszonen sehr unterschiedliche Effekte generieren, es also die jeweils spezifischen Rahmenbedingungen zu beachten gelte. ...
... A question that several papers in our special issue (Aggarwal, this issue, Chen, this issue) and elsewhere (Madani, 1999;Schrank 2001;Farole and Akinci 2011; address is: What happens to an SEZ in a dynamic scenario, when the original source of comparative advantage diminishes? That is, where a host country establishes an SEZ to take advantage of, say, low-cost labour, what should be done when labour is no longer its locational advantage (relative to other countries or SEZs)? ...
Volume 26 number 2 of the Transnational Corporations journal is a special issue dedicated to special economic zones (SEZs) and their potential as vehicles for development. The issue grew out of research and background papers that fed into UNCTAD's World Investment Report 2019, the thematic focus of which was SEZs. In compiling this issue, we sought to contextualize the emergence of SEZs, their evolution, and the associated policy trajectories that underpin them. This introductory paper amalgamates observations from the broader academic literature, as well as the findings of the World Investment Report 2019 and its associated background papers. A common theme is that a well-designed zone will evolve with the changing comparative advantages and development level of the underlying economy, in what is described as the "SEZ development ladder". As the locational advantages change, the emphasis and the objectives of the SEZ must also change. Reliance on "generic" locational advantages must necessarily diminish, and greater emphasis needs to be placed on developing "specialized" locational advantages. Another key finding is that the benefits of an SEZ must intentionally "leak" beyond the perimeter of the zone. The pervasiveness of the direct, indirect, and induced extra-SEZ effects beyond the geographically bounded space of the SEZ determines its success or failure. Scope remains for future research on SEZs, focusing on their sustainability, the impact of the digital economy and industry 4.0, and the involvement of new financing partners for SEZ development.
... The main prerequisite for the introduction of special economic zones (SEZs) is usually an attempt to base the future direction of the country's development on industrialization (Chaudhuri & Yabuuchi, 2010) and openness of the economy (Baissac, 2011;Ge, 1999), which with favourable institutional conditions, creates a beneficial climate for generating growth (Litwack & Qian, 1998;Pan & Ngo, 2016;Schrank, 2001;Zeng, 2010) and economic development (Alkon, 2018;Ambroziak & Hartwell, 2017;Moberg, 2015;Pan & Ngo, 2016;Pastusiak, 2011;Pastusiak, Jasiniak, Keller, & Krzeczewski, 2016). At this stage, however, most developing countries, acting in the face of capital shortfalls (with great international competition in its acquisition) (Cheng & Kwan, 2000), are also able to offer relatively cheap quality inputs of fairly good quality. ...
Given the lack of analyses covering that aspect of operations run by the SEZs in Poland, a decision has been made to launch research aimed, primarily, at identifying the actual impact of the special economic zones on foreign trade turnover of Poland’s economy. The research covers, amongst others, the directions of impact, scale, share in the domestic trade turnover, commodity structure, technological intensity, commodity and geographic concentration of foreign trade
turnover generated by companies holding valid permits to carry out business operations in the SEZs relative to the overall Poland’s foreign trade.
The conducted research primarily aimed at responding to the following
scientific questions:
1) What is the share of Poland’s exports/imports generated within the SEZs? Do the SEZs have a significant impact on the Poland’s trade turnover? What is the balance of foreign trade turnover in the SEZs?
2) How do the SEZs contribute to creating competitive edges in Poland’s foreign trade? Which commodity groups are characterised by the highest competitive advantage in terms of exports generated by entities operating in the SEZs? What types of commodities (i.e. of low, average or high competitiveness) prevail in the foreign trade turnover generated within the SEZs? Do the SEZs contribute to stimulating changes in the Poland’s foreign trade turnover?
3) What is the technological intensity of exports and imports in the SEZs, as compared to the non-SEZ part of the economy? Do we witness higher technological advancement of exported goods within the zones, as compared with non-SEZ ones?
4) What is the difference in the structure of Poland’s foreign trade turnover, as compared with the trade turnover structure typical of entities operating in the SEZs? What is the product concentration of exports and imports in the SEZs?
5) What are the main sale markets of companies operating in the SEZs? Are entities operating in the SEZs characterised by higher intensity of trade connections than the aggregate national economy? Are entities operating within the SEZs more prone to the transmission of negative shocks related to economic cycles via the trade channel?
6) Are entities operating in the SEZs characterised by a higher export/import activity than entities staying outside the zones? Is the financial standing of entities operating in the SEZs more dependent on the economic climate witnessed on external markets than the standing of entities located outside the zones?
The monograph summarizes a significant part of the results of the research project entitled “Foreign Trade in Special Economic Zones in Poland”, financed by the National Science Centre in Poland (project no. DEC-2013/11/D/HS4/04007). The project aimed at identifying the real impact of SEZs on Poland’s trade turnover. Its implementation focused on expanding the available scope of knowledge on the impact of the SEZs on the Poland’s trade and has enabled to join in the ongoing national and international academic debate on further functioning
of various types of areas of special preference. Moreover, the research permitted for identification of microeconomic determinants of the impact of the SEZs on business entities in terms of their export activities contributing to a widening of scientific achievements in the field of economics.
... It set up one EPZ in Karachi in 1981. However, by 1990, employment in the zone was just 2,000 (Schrank 2001). A study assessing the performance of SEZs in Pakistan finds political instability and lack of state support and local partnerships at the macro level; lack of export facilities at the meso level; and a weak package of incentives; an inadequate legal framework; and absence of a single window clearance facilities at the microlevel behind the poor performance (Akhtar 2003). ...
... Feasibility studies revealed abundant EPZ demand for textiles, precision plastic parts, metal stamping, machine shops, and tool, mold and die making. In successful FZ programs-for example, Malaysia and the Republic of Korea-the development of strong local clusters is acknowledged as making a significant contribution to the successful upgrading of FZ-based manufacturers by giving them access to competitively priced, world-class quality inputs (Schrank, 2001). ...
... According to literature, the main implementation objective(s) of free zones is to serve at least one of the following four policy objectives; 1) foreign direct investment attraction to the country, export promotion and ultimately industrialization; 2) to serve as a "pressure valve" for large scale unemployment alleviation 3) serve as a pillar for a broader economic reform strategy and 4) serve as laboratories for new policies and approaches experimentation [3] [4] [12] [13] [14]. Free zones can be used as effective industrialization promotion mechanism and if executed correctly in the right context has the tendency to push the entire country on faster economic developmental trajectory [15] [16] [17] [18]. ...
... Foreign investors through clustering in SEZs transfer they knowledge, know-how, modern technologies and products quality to local companies, often forced to improve [Johansson, Nilsson 1997]. In this context SEZs pull the rest of the economy on a path of faster development [Basile and Germidis 1984;Litwack 1998;Schrank 2001]. By attracting foreign direct investments and stimulating trade, SEZs support the knowledge and know-how acquisition which are necessary to innovation development. ...
... The available analyses refer to operations of preferred areas, including SEZs, on selected markets, amongst others, in terms of support for entrepreneurship, concentration of economic activity within clusters (Zeng, 2011), economic growth (Litwack & Qian, 1998;Schrank, 2001;Zeng, 2010), acceleration of transformation processes (Ahrens & Meyer-Baudeck, 1995;Ge, 1999;Zeng, 2011), promotion of industrialisation in developing countries (Chaudhuri & Yabuuchi, 2010), inflow of investments (Cheng & Kwan, 2000), increase of employment (Curtis, Hill & Lin, 2006;Madani, 1999), development of export-oriented activities (Farole, 2011;Farole & Akinci, 2011;Johansson & Nilsson, 1997;Nazarczuk & Umiński, 2018b), support for economic openness (Baissac, 2011;Ge, 1999) and impact on local economies (Nazarczuk, 2013;Nazarczuk & Umiński, 2018a;Wang, 2013). ...
Special economic zones (SEZs) play a significant role in global, national and regional trade flows. Given the insufficient number of empirical contributions regarding firm-level consequences of operation in SEZs, an analysis in which implications for firms' standings is undertaken. With the use of different estimation approaches, applied to a unique dataset comprising 155 SEZs firms and 155 non-SEZs firms (matched sample) obtained from various sources, the author investigates if SEZs firms obtain a competitive advantage through higher productivity compared to non-SEZs firms. The results prove that SEZ firms differ in this regard. However, the sign of its contribution is conditioned by the type of productivity analysed.
... The literature on free ports is mostly focusing on their conditions of success and their impacts. Economic conditions that may favor emergence of free ports have been largely investigated (Farole, 2011;Haywood, 2000;Kusago and Tzannatos, 1998;Rhee et al., 1990) as well as their impacts (Miyagiwa, 1986;Baissac, 1996;Schwob and Lorot, 1987;Madani, 1999;Schrank, 2001). In the same way, legal (Blanc, 1996;Trampus, 1999), geographical (Bost, 2011;Yang, 2009) and social (Susman and Schneider, 2008) conditions brings light to favorable frameworks that help the development of free ports. ...
Free ports are a form of territorial exceptionalism that has existed for centuries and become an important paradigm of globalization. In the contemporary setting, they act as transportation, logistics and trade platforms, using their territorial exceptionalism as a competitive advantage. Free ports such as Hong Kong, Singapore and Dubai are among the world’s leading commercial gateways, offering a form of leverage to transactions, transportation and the transformation of material goods. The historical evolution of free ports underlines a growing complexification and specialization that has led to a multitude of models, each fitting a specific regulatory and operational framework.
This paper aims rationalizing the complexity of free ports. It is based on a wide array of empirical observations and an analysis of structure, function and evolution of free ports. Collected free ports data enabled the identification of three constitutive factors of evolution: an external factor (the jurisdiction), an internal factor (the services provided) and a linking factor (the orientation of flows). Based on these three factors a model of free ports was designed with a typology of thirteen types of free ports, an explanation of their evolution, and their future prospects.
... The idea of 'scalability' of institutions from the SEZ to the host country is not a new one, as it is embedded in the theoretical benefits of an SEZ (in particular in the idea of SEZs as a policy laboratory; Xu & Chung, 2014). But the idea of institutional improvement as something capable of being transmitted is somewhat novel in that it presupposes that SEZs may act as a 'bridge to structural transformation' in Schrank's (2001) ...
The theory behind special economic zones (SEZs) focuses on their role in overcoming broader policy failings in a country. This paper hypothesizes that the ability of smaller countries to reform more quickly provides a theoretical ‘missing link’ as to how SEZs can assist reform, developing the idea of SEZs as a ‘small country in a large country’. Using a new database, the paper tests this proposition by examining if SEZs have actually been able to spur on institutional improvement in large countries. Results show that SEZs do influence the institutional development of a country, contingent upon prevailing institutional trends.
... This situation refers to employment, too. (Wall,1993;Schrank, 2001). Table 4. ...
The problem of 2020 in the activity of Polish special economic zones is substantial. That year, according to the Polish law, they will have to close down. Therefore, in Poland a discussion on their future role in 2020 and beyond has started. Among the groups of interest one can find the zones themselves as well as Ministry of Economy and Ministry of Finance. The article is based on reports issued by the zones and the ministries and aims at the devising a conception of the future activity of special economic zones by 2020 considering arguments of all parties.
... Scholars see EPZs as tools for reform and even prescribe them as a development policy (Basile and Germidis 1984;Schrank 2001;FIAS 2008;Lockridge 2012). However, by their nature, EPZs rarely live up to the high expectations. ...
Scholars commonly see rent-seeking as destructive, but governments sometimes introduce beneficial liberalizations as they try to maximizing their rents. The export processing zone (EPZ) is an example of a rent-seeking tool with the appearance of a policy for economic development. My model of endogenous tariff formation illustrates the incentives of interest groups to lobby for or against protectionism, which provides rents for the government. Trade liberalization causes the government to lose these rents. It can introduce EPZs as a way to liberalize the economy only partially, and thereby preserve some of its rents. My model implies that EPZs are beneficial if their political alternative is more protectionism, but not if the government would otherwise need to fully liberalize the economy. It also indicates that EPZs do not benefit an economy via backward linkages with the rest of the country. Rather, EPZs tend to divide the economy between exporters and import-substituting firms, with little connection between them. This divide only grows with time, as the EPZ sector's production becomes increasingly sophisticated and detached from protected domestic industries. Rather than backward linkages, the benefits of EPZs come in the form of a marginal improvement to a country's trade regime. I present a case study of the EPZs in the Dominican Republic based on interviews with EPZ investors and experts. The case study confirms the theoretical discussions.
... They then spread their know-how about technology and quality upgrading to domestic firms, which can then upgrade and become exporters (Johansson and Nilsson, 1997; Romer, 1993). SEZs can thus pull the rest of the country on a path of faster economic development (Basile and Germidis, 1984; Litwack, 1998; Schrank, 2001). They may even contribute to countrywide political reforms (Auty 2010; Crane, 1990; Weingast et al., 1995: pp 62). ...
This paper is a first attempt to apply a robust political economy framework to explain when Special Economic Zones (SEZs) can contribute to economic development. A robust political economy is one that channels the
actions of self-interested individuals with limited information to promote economic progress. In the right institutional context, SEZs tend to promote economic growth. In the wrong institutional context, they can cause resource misallocation and rent-seeking. Policy makers introducing SEZs must overcome the knowledge problem to avoid misdirected economic planning. Yet, the scheme can only fulfill its purpose if it also prevents destructive rent-seeking behavior, both from businesses and from government authorities. The political economy framework of SEZs can be applied to judge their potential efficacy, something that orthodox studies of country features such as natural resources, infrastructure, and zone location fail to do. The Indian and Chinese experiences with SEZs illustrate these points.
... One of the ways in which this could be achieved is for the government of Jordan to extend 'equal footing' policies to firms outside QIZs. Schrank (2001) defines an equal footing policy as one that "extends the privileges and regards of EPZ status to non-EPZ sub-contractors and suppliers." According to Madani (1999), unless domestic firms benefit from privileges equal to those enjoyed by firms inside these zones, bestowing them only on EPZ firms discriminates against domestic firms located outside the EPZ. ...
... Labor activists campaigned against restrictions on freedom of association, collective bargaining and other basic rights in SEZs (AMRC 1998;Klein 2000). Scholars contend that the world's most successful zones have been established in East Asia's newly industrializing countries, and their achievements are unlikely to be replicated in the Developing World's less prosperous environs, particularly countries with small markets (Schrank 2001). ...
Literature on special economic zones (SEZs) has made important contributions to our understanding of globalization and topics including labor rights, export‐led development outcomes, and post‐socialist experiments with market economies. Less understood is the geopolitics of contemporary economic zones. This article focuses on border economies and state activity regarding territorial integrity and regulation of migrant labor. The case studies in Cambodia and Thailand demonstrate that SEZs reflect, reinforce and expand states’ reach, rather than prove exception to broader national orders of power. This understanding of contemporary SEZs enhances research agendas on state practices vis‐à‐vis the ‘imperatives’ of global economic integration and geopolitics. The changing role of SEZs in economic globalization reveals the complexity of state spatial practices.
... States have established these zones with highly liberal financial and legal frameworks to encourage industrialisation and job creation by promoting foreign investment, export-oriented production, and the transfer of skills. While these zones have not always resulted in these ends, 17 and they definitely have not in the Iranian case, the facilities and lowered barriers to trade and finance have made the southern Gulf a critical node in various transnational networks. ...
Free trade zones have been championed by policy makers as important mechanisms for the “economic liberalisation” and “globalisation” of the Middle East. While a growing number of political economists have begun to investigate the performance of these projects, few have considered why states voluntarily limit their sovereign powers by establishing these liberalised territories. To address this question, this paper studies the Jebel Ali free trade zone in Dubai (UAE) and the Kish free trade zone in Iran, two of the earliest such projects in the region. Rather than being products of neoliberal ideology or pressure from advanced industrial economies, the essay argues that paradoxically these zones were developed by the Iranian state and Dubai emirate to project territorial sovereignty in turbulent geostrategic settings and moments as well as nodes to circulate rent to domestic and international members of ruling coalitions. The geostrategic and state-building logics informed when, where, and how these projects were developed. More generally, this analysis illustrates that the Middle East is neither absent from the process of globalisation, nor does it simply respond passively and reactively to this complex process. Free trade zones are an example of local strategies working in consort with international processes to fashion new forms of economic and political interconnectedness.
This study analyzes the effect of free zones on the competitiveness of manufactured exports from Africa. Particular interest is devoted to the channels through which free zones affect export competitiveness. The empirical analysis covers a sample of 29 countries for the period 1996–2018. Using panel data techniques, the results show that the free zone has a positive and significant
effect on export competitiveness. The main transmission channels identified are foreign direct investment inflow, human capital, and institutional quality. As the main policy implication, policymakers in Africa need to invest more in human capital development and improve the attractiveness of the investment environment as a priority for having productive free zones.
The small and medium enterprise (SME) sector is considered the backbone of an economy. The sustainable growth of the SME sector is crucial for industrial development, employment creation, import substitution, export promotion, and the economic uplift of any country, especially developing economies. However, due to resource constraints in a developing economy, it is difficult to industrialize to a large extent. For this purpose, developing special economic zones (SEZs) in a country’s selected areas is considered the second-best option to efficiently boost investment and effectively develop the industrial/manufacturing sector. Against the backdrop, this study attempts to probe the possible synergies between prioritized special economic zones (pSEZs) under the China-Pakistan Economic Corridor (CPEC) and SMEs through backward linkages, resource mobilization, and knowledge spillover to uplift the country’s domestic economy (dominated by SMEs and SEZs). The study modifies and employs the Warr’s enclave approach to depict the possible competing and complementing effects of pSEZs on SMEs and concludes that a balanced approach to developing synergy between pSEZs and SMEs is required to increase local investment in the domestic economy as well as attract foreign capital inflows/foreign direct investment (FDI) in pSEZs to complement the SME sector and revitalize industrialization.
Economic development zone (EDZ) is a spatial policy and experimental strategy for stimulating economic growth. Even though its roots are ancient, it is only in recent decades that EDZ has emerged as a powerful global form. Zoning technologies, as a compromise between liberal and protective regimes, can be seen as the state's intention to cope with the emerging opportunities and pressures of internationalization by redefining its territory, border, and sovereignty. However, the restructuring process incurs social and spatial tensions, since that zoning policy also implies differentiating the treatment of land and people. Situated in changing political‐economic climates, EDZs, on the one hand, extend to cover as far as possible, through networking, the subcontracted fragments of the national territory, and, on the other hand, become part of the assemblage of a globalizing world.
The growing phenomenon of cluster internationalization has enriched the existing international business theories, but has also brought new puzzles and problems for these theories and perspectives. To synthesize what we do and do not know concerning cluster internationalization, we employed the qualitative content analysis method, systematically reviewing 348 articles published during the period 1990–2019, as well as 16,486 references. Our review examined five major areas, including citations, co-citations, theoretical foundations, co-occurrence networks, and three-phase research topics (pre-internationalization, internationalization, and post-internationalization) based on ten keywords. Moreover, we found that the research on the internationalization of emerging market clusters has shown a rising trend in recent years. We took China as an example to conduct in-depth research on three types of cluster internationalization (inward internationalization, outward internationalization, and overseas parks) with a view to expanding the academic perspective of the internationalization of emerging economic clusters. Finally, in order to promote further research on cluster internationalization, potential future themes related to cluster internationalization research are discussed.
Purpose
The purpose of this study is to show under what conditions a special economic zone will succeed at spurring development and at sparking broader liberalization.
Design/methodology/approach
The authors use a combination of formal modeling and case studies.
Findings
Most special economic zones fail because of rent-seeking. Successful zones create positive economic and political externalities to other regions. Credible reforms are associated with turning the opposition to the zones into supporters, as a consequence to the positive externalities.
Originality/value
The authors add heterogeneity to the model of political elite dynamics, which leads to significant enhancements of the model and removes the pro-centralization bias of the Blanchard and Shleifer's (2001) model. They also criticize Weingast's federalism model as applied to China. Success of China is explained by a different mechanism, which we put forth in this paper.
Boosting the local economic growth and cohesion policy may be supported by using the public intervention. The local governments may benefit directly and indirectly from the place-based policy implemented as Special Economic Zones (SEZ). SEZ directly increase the employment and the number of firms, while, indirectly, they can raise the local public sector financial performance in the long run by increasing revenues from personal and corporate income taxes. This article assesses the efficiency of this policy at the local level in the context of an institutional environment and inter-agent local diffusion. It also uses the statistical methodology based on the comparison of the empirical density distributions of the economic and financial indicators within the institutional groups to detect the global shift or divergence or convergence patterns. This article examines the Polish experience of public intervention in 1995–2016 with 14 SEZ located in more than 350 different locations. It proves that in general, the financial and economic situation of the municipalities with SEZ did not improve. An institutional analysis of the SEZ operating conditions indicates that the weak operating requirements for SEZ firms together with a poor location cannot constitute a catalyst for local development.
This paper examines China’s engagement with Africa through economic zones (EZs). It moves beyond the conceptualisation of EZs as undifferentiated enclaves of foreign investment to a dynamic perspective on the locally negotiated process of zone development. Such a perspective entails critical unpacking of the specific zone regime to understand the diverse and evolving relationships among different state and non-state actors. Drawing upon empirical research on the Eastern Industrial Zone (EIZ) in Ethiopia, we explore the complex process of learning and adaptation by government, developers, investors, and workers throughout the development of a zone regime, with specific attention to capital–labour and expatriate–local relations. We find that despite the EIZ being a state-level cooperation project, private Chinese developers work diligently with the Ethiopian government to improve the institutional support for EZs. Chinese investors also collectively generate a management regime to enhance their overseas operational capacity and experiment with various tactics to transform local recruits into an industrial workforce. Local workers, with limited protection by official labour unions, turn to individual- and group-based agency to improve their working conditions. Despite the momentum created by multiple stakeholders, there are concerns regarding the long-term contributions of EZs to engender sustained industrial transformation and skills development.
Ethiopia’s economy has been growing at breakneck speed for well over a decade now, earning the nickname as Africa’s lion. In recent years, the development literature on Ethiopia has paid particular attention to the role of industrial policy, especially the ways in which the Ethiopian experience compares to that of the Asian tigers. But through this comparative-historical perspective, little attention has been devoted to an important aspect of industrial policy in Ethiopia – foreign direct investment (FDI) in the manufacturing sector. This paper compares FDI-oriented industrial policy in Ethiopia in the current era (particularly focusing on light manufacturing) to that of South Korea and Taiwan between 1960 and 1990, arguably the two most generalisable cases among the Asian tigers. The paper argues that FDI-oriented industrial policy in Ethiopia seems to be bringing about short-term economic benefits, and is showing promise for further industrialisation. At the same time, it could benefit from taking more lessons from the long-term economic development perspective that characterised South Korea’s and Taiwan’s approach to FDI. Such a long-term perspective most importantly includes pro-active strategies to transfer technology from foreign firms to the domestic economy and the creation of backward linkages from foreign to domestic firms.
Free Zones are still rarely analyzed in geographical and economic studies. Yet they are a striking illustration of the opening of the world to the international exchanges: in the last two decades, they tremendously increased even in the countries the most reluctant to capitalism. In 2007, 123 countries out of 192 had Free Zones. That year, 1,257 Free Zones were listed throughout the world, 75% of which were located in Third World and Eastern Europe countries. Represented in low-value added activities as well as in the most high-tech sectors, these Free Zones employed approximately 45 million people in 2007. This article draws up a much-needed inventory of their presence by geographical area and outlines new tracks for further research.
Exportorientierte Industrialisierung markiert ein wesentliches Element wirt-schaftlicher Entwicklung sowohl in Malaysia als auch in Vietnam. Beide Länder verfolgen, wenn auch von sehr unterschiedlichen historischen Aus-gangspunkten aus, entsprechende entwicklungspolitische Zielsetzungen. Wäh-rend Malaysia bereits in den 1970er Jahren eine Politik der weltmarktorien-tierten Industrialisierung formulierte, hat die vietnamesische Regierung erst im Zuge der auf dem VI. Parteitag 1986 sukzessive eingeleiteten Doi-Moi-Re-formen die außenwirtschaftliche Öffnung des Landes vorangetrieben. Gleich-wohl ist für beide Länder kennzeichnend, dass im Zentrum der jeweiligen Industrialisierungspolitik exportorientierten Produktionszonen (EPZ) 1 stan-den und stehen. Anhand der beiden Länder sollen im Folgenden zentrale As-pekte der Entstehung von EPZ dargestellt und ihre Bedeutung für die jewei-lige industrielle Entwicklung diskutiert werden. In den Sozial-und Wirtschaftswissenschaften wird die schrittweise regi-onale Ausbreitung exportorientierter Industrialisierung seit den 1960er Jah-ren mit der nicht unumstrittenen Metapher der flying geese (Gänseflugfor-mation) beschrieben. 2 Ausgehend von der " Leitgans " Japan wurden Produk-_______________ 1 Der Begriff der " exportorientierten Produktionszone " (Export Processing Zone: EPZ) wird im Folgenden als eine Sammelbezeichnung für einen Typus von Produktionsstandort ver-wendet, der, obwohl er weltweit einem engen Entwicklungsmuster folgt, von Land zu Land (und zum Teil innerhalb eines Landes) ganz unterschiedlich bezeichnet wird. Über-sichten über die Bezeichnungen für freie Produktionszonen finden sich u. a. bei ROMERO (1995) und SINCLAIR (2001). Für einen systematischen Überblick über verschiedene Ent-wicklungsstufen von EPZ siehe u. a. MENG (2003). 2 Vgl. hierzu u. a. die Darstellung bei SMITH (2001).
China’s special economic zones helped the country industrialize by attracting foreign investment. In 2006, Beijing initiated an overseas trade and cooperation zone program, assisting Chinese companies to invest abroad while also building China’s soft power through the transfer of a key component of China’s development success. Little is known about the 19 zones approved so far under this program, or the impact they are likely to have on structural transformation and industrial development in their host countries. This paper identifies the 19 zones and their proposed locations, the process of selection, developers, implementation, and the Chinese incentive regime. It then focuses on the African zones. Using a typology of factors that have proven critical for zone development in the past, the paper evaluates the potential of these zones for fostering structural transformation in Africa.
This study offers that entrepreneurship is consistent with and even complementary to the older and more traditional development strategies. We survey the literature on entrepreneurship in developing countries which, admittedly, is wide and covers a range of issues from culture and values; institutional barriers such as financial sector development, governance, and property rights; and to the adequacy of education and technical skills. A broad literature has also developed on foreign direct investment and its positive and negative effects on technology transfer and entrepreneurship. After the collapse of the Soviet Union, a number of studies examined the development of small-and medium-sized enterprises in transition economies. As these economies moved from centralized economies to market economies, enterprise and entrepreneurship became important. Yet, other studies examine the effects of infrastructural development and the macroeconomy on entrepreneurship. With such a wide scope of issues, a framework for synthesizing the literature is needed. This study offers that the identification of the externalities which affect entrepreneurship provides a useful framework to examine the literature on entrepreneurship in developing countries.
Recent literature maintains there are at least two explanations for the motivations of FDI, one involving trade barriers (horizontal-FDI) and the other factor proportions hypothesis (vertical-FDI). The first view is that multinationals act in order to overcome trade barrier, and the second view is that multinationals arise to take advantage of international factor price differences. The purpose of this paper is to study the motivations of Korean foreign direct investment in China. Using the panel data on Korean FDI in China for the years 1988~2002, we examined the geographic determinants of direct investment in China from Korean firms. In doing so, we investigated, on the one hand, to what extent multinational activity is consistent with the factor proportions theory, i.e., to what extent multinational activity is related to cheap factor supplies. On the other hand, we study the market access motivation for multinational activity. Our econometric results suggest that factor proportions hypothesis is indeed the dominant influence on investor calculations for the early period of Korean FDI in China. Since end of 1990s, however, market-seeking FDI pattern is more common than FDI motivated by factor price differentials. We also find that the hypothesis that good-quality infrastructure is conducive to attracting FDI is not supported for Korean firms. Evidence supports the claim that regions with high degree of reform, which implement preferential treatments to foreign investors, still have advantage over other regions in attracting FDI. In sum, the findings in this paper indicate that Korean FDI for the early period of KorRecent literature maintains there are at least two explanations for the motivations of FDI, one involving trade barriers (horizontal-FDI) and the other factor proportions hypothesis (vertical-FDI). The first view is that multinationals act in order to overcome trade barrier, and the second view is that multinationals arise to take advantage of international factor price differences. The purpose of this paper is to study the motivations of Korean foreign direct investment in China. Using the panel data on Korean FDI in China for the years 1988~2002, we examined the geographic determinants of direct investment in China from Korean firms. In doing so, we investigated, on the one hand, to what extent multinational activity is consistent with the factor proportions theory, i.e., to what extent multinational activity is related to cheap factor supplies. On the other hand, we study the market access motivation for multinational activity. Our econometric results suggest that factor proportions hypothesis is indeed the dominant influence on investor calculations for the early period of Korean FDI in China. Since end of 1990s, however, market-seeking FDI pattern is more common than FDI motivated by factor price differentials. We also find that the hypothesis that good-quality infrastructure is conducive to attracting FDI is not supported for Korean firms. Evidence supports the claim that regions with high degree of reform, which implement preferential treatments to foreign investors, still have advantage over other regions in attracting FDI. In sum, the findings in this paper indicate that Korean FDI for the early period of Korean FDI in China is consistent with motives related to the factor proportions hypothesis, which explains that one of the determinants of FDI is to exploit the cheap labor of this country. On the other hand, recently motives related to horizontal FDI are more common.
Special economic zones (SEZs) have been touted as "tools for development", and yet their results have often been disappointing. We explain how SEZs can be used to reform a country from a system dominated by rent-seeking to a liberalized economy, where officials derive their revenues from taxation rather than rent-seeking. We provide a model of elite dynamics to explain the conditions under which governments can create SEZs that promote country-wide development. Our model predicts that SEZs may only lead to country-wide development in fiscally decentralized countries with heterogeneous elites. SEZs allow areas of a country to liberalize further than the standard theory of federalism suggests. An elite minority in favor of liberalization can therefore introduce SEZs that have external liberalizing effects on other regions in the country. This in turn incentivizes more elite members to promote liberalization. Comparing the SEZ programs in China and Ghana illustrate how seemingly similar SEZ programs can have very different results.
This article proposes an alternative perspective for examining export This article proposes an alternative perspective for examining export processing zones (EPZs) by modifying the life-cycle approach. It processing zones (EPZs) by modifying the life-cycle approach. It highlights the two crucial aspects of a successful EPZ development, highlights the two crucial aspects of a successful EPZ development, namely the nature of backward linkages and gradual integration into namely the nature of backward linkages and gradual integration into the rest of the host economy. It argues that successful EPZs can be a the rest of the host economy. It argues that successful EPZs can be a catalyst for structural transformation of the wider economy and discusses catalyst for structural transformation of the wider economy and discusses what policy measures are needed to achieve such outcome. The article what policy measures are needed to achieve such outcome. The article concludes by identifying venues for future research. concludes by identifying venues for future research.
Research on special economic zones (SEZs) economics has burgeoned in the last three decades. The paper enriches the understanding of SEZ rationale from an institutionalist methodological approach. The key argument is that the literature should examine the processes through which cognitive, regulative and organizational traits of SEZs interact. It is argued that the methodological gap between economic agents, institutional structures and SEZ organizations could be bridged if more light is being shed on their interaction rather on their analytical separation. Equally important, it is claimed that the interplay of SEZ structures and SEZ economic agents determines the success or the failure of zones.
Resumen. Los estudios sobre la economía de las zonas económicas especiales (ZEE) han florecido en los últimas tres décadas. El artículo enriquece la comprensión de la justificación de las ZEE a partir de un planteamiento metodológico institucionalista. El argumento principal es que la literatura debería examinar los procesos mediante los cuales interactúan los rasgos cognitivos, reguladores y organizativos de las zonas económicas especiales. Se argumenta que la disparidad metodológica entre los agentes económicos, las estructuras institucionales y las organizaciones de las ZEE podría reducirse si se arrojara más luz sobre su interacción, en lugar de su separación analítica. Con igual importancia, se afirma que la interacción de las estructuras de las ZEE y los agentes económicos de las ZEE determina el éxito o el fracaso de las zonas.
This paper is a first attempt to apply a robust political economy framework to explain when Special Economic Zones (SEZs) can contribute to economic development. A robust political economy is one that channels the actions of self-interested individuals with limited information to promote economic progress. In the right institutional context, SEZs tend to promote economic growth. In the wrong institutional context, they can cause resource misallocation and rent-seeking. Policy makers introducing SEZs must overcome the knowledge problem to avoid misdirected economic planning. Yet, the scheme can only fulfill its purpose if it also prevents destructive rent-seeking behavior, both from businesses and from government authorities. The political economy framework of SEZs can be applied to judge their potential efficacy, something that orthodox studies of country features such as natural resources, infrastructure, and zone location fail to do. The Indian and Chinese experiences with SEZs illustrate these points.
Free zones and globalization
Free Zones are still rarely analyzed in geographical and economic studies. Yet they are a striking illustration of the opening of the world to the international exchanges : in the last two decades, they tremendously increased even in the countries the most reluctant to capitalism. In 2007, 123 countries out of 192 had Free Zones. That year, 1,257 Free Zones were listed throughout the world, 75% of which were located in Third World and Eastern Europe countries. Represented in low-value added activities as well as in the most high-tech sectors, these Free Zones employed approximately 45 million people in 2007. This article draws up a much-needed inventory of their presence by geographical area and outlines new tracks for further research.
As an instrument of trade and investment policy, special economic zones have played a catalytic role in processes of industrialization, diversification, and trade integration in many countries, particularly in East Asia. However, in the African context, anecdotal evidence suggests the experience has been disappointing on the whole. Among the reasons why many zones underperform may be that they fail to establish a high quality investment environment - this is, after all, one of the main promises that economic zones hold for investors. Drawing on original survey research, this paper presents a systematic analysis of the outcomes and the investment climate of economic zones programs in six African countries and four developing countries outside the region. The analysis finds that although performance across zones is mixed - with Ghana and Lesotho in particular performing well on some measures - African zones programs on the whole are underperforming in terms of attracting investment, facilitating exports, and creating jobs. Economic zones in Africa offer an improved business environment relative to what is available to firms based outside the zones; however, in comparison with the non-African countries in the survey, both absolute investment climate performance and relative improvements fall well short.
Accepting the Grindle/Thomas argument that developing states enjoy a high degree of autonomy, this article takes a case study approach to analyze the dynamics of Chinese foreign economic policy. The article posits that contending elites coalesced around particular visions of economic development, which have been the major variable affecting the Chinese export processing zone (EPZ) policy. Thus the current decision to rescind SEZ preferences is based on the elites’ decision to ‘deepen’ China's outwardly‐oriented development.
Free economic zones (FEZs) play important roles in industrialization and economic development of both capitalist and socialist
countries in various regions of the world, and thus have become a major subject of study in the development literature. Theoretical
debate and empirical analysis have focused narrowly on the positive and negative economic effects of export processing zones
(EPZs) in capitalist Third World countries, without giving sufficient consideration to why, when, and how different types
of FEZs in both capitalist and socialist economies adapt their roles in achieving development objectives under changing international
and domestic conditions. In this article, I systematically compare the dynamic development roles of three FEZs in two different
systems—the state capitalist economies of Taiwan and South Korea and the reforming socialist economy of China—during 1966–1990.
The comparative findings are interpreted from competing and complementary perspectives of major development theories. Finally,
I use the comparative evidence to refine a lifecycle model of the evolution and prospect of EPZs in capitalist newly industrializing
countries, and suggest an alternative scenario for FEZs in socialist economies.
This article explains the emergence of free trade politics withing Mexico with a simple model in which decisionmakers seek to equate the marginal costs of a policy (defined as distributive consequences) with the marginal benefits (defined as net gains). The resulting political cost benefit ratio is affected by institutional arrangements, asymmetric information, macroeconomic conditions, and ideological commitments and can be used to determine the "politically optimal" degree of trade liberalization. The model also allows for outcomes which are "unexpected" - for example, if democratization pressures open up institutional and informational access or macroeconomic conditions deteriorate - and which can therefore threaten the sustainability of a previously chosen policy. Evidence from the Mexican trade liberalization provides some support for the theoretical framework regarding both the origins and possible political risks involved. Copyright 1994 by MIT Press.
Traditional export processing zones are fenced-in industrial estates specializing in manufacturing for exports. Modern ones have more flexible rules, such as permitting more liberal domestic sales. They provide a free-trade and liberal regulatory environment for the firms involved. Their primary goals: to provide foreignexchange earnings by promoting non-traditional exports, to provide jobs and create income, and to attract foreign direct investment and attendant technology transfer and knowledge spillover. Domestic, international, or joint venture firms operating in export processing zones typically benefit from reduced red tape, flexible labor laws, generous long-term tax holidays and concessions, above-average communications services and infrastructure (and often subsidized utilities and rental rates), and unlimited duty-free imports of raw and intermediate inputs and capital goods needed for production. In this review of experience, the author concludes that export processing zones have limited applications; the better policy choice is to liberalize a country's entire economy. Under certain conditions - including appropriate setup and good management - export processing zones can play a dynamic role in a country's development, but only as a transitional step in an integrated movement toward general liberalization of the economy (with revisions as national economic conditions change). The world Bank, writes the author, should be cautious about supporting export processing zone projects, doing so only on a case-by-case basis, only with expert guidance, and only as part of a general reform package. It should not support isolated export processing zone projects in unreformed or post-reform economies (in the last case they might encourage backsliding on trade policy). In general, if a policy is good for the economy as a whole, it is likely to be good for an export processing zone. Sound policy will encourage: 1) Sound, stable monetary and fiscal policies, clear private property and investment laws, and a business-friendly economic environment. 2) Moderate, simplified (but not"over-friendly") corporate tax schedules, and generally liberal tariffs and other trade taxes. 3) Private development and management of export processing zones and their infrastructure and unsubsidized utilities. 4) Labor laws that are business-friendly but do not abuse workers'safety and labor rights. 5) A better understanding of the impact of industrial refuse on the quality of air, soil, water, and human health.
Distribution centers are being located in some untraditional sites.
The Mexican case shows a number of singular features which, over a longer time span, will probably make it a unique example of economic and political success in terms of the smoothness of its transition to a liberalised trade regime. This paper argues that - besides the critical role of non-economic factors, including geography and politics - this outcome can largely be attributed to the no less successful experience that Mexico had with import-substitution industrialisation and, perhaps more paradoxically, to the very adverse macroeconomic conditions under which trade reform was undertaken in the 1980s. At the same time, and for related reasons, the paper is sceptical about the long-term benefits that the particular form of trade liberalisation adopted is likely to bring. -from Author
Using cross-sectional comparative data, a number of investigators report inverse correlations between mother tongue diversity and various measures of national development. Longitudinal analyses of mother tongue diversity in eight different nations over relatively long periods of time, along with a shorter longitudinal analysis of all European nations, indicate that such correlations are probably void of any causal implications. An analysis of covariance explains why cross-sectional correlations occur between variables that are not dynamically related. In addition to suggesting the need for an alternative perspective on the course of mother tongue diversity, the results have critical implications for some of the most common procedures used in the comparative study of nations.
In Mexico, as in many other Third World countries in recent years, the belief in export-led industrialisation fuelled by foreign investment and technology (ELIFFIT) is beginning to displace other available development strategies, such as import substitution, varying degrees of autarky, or the traditional reliance on primary product export. This paper explores how the maquila industry along the Mexico-US border, by spearheading ELIFFIT, has helped create a transnational capitalist class which is gradually changing the ways in which Mexico relates to a global capitalism in the process of reformation. My particular purpose here is to show how the maquila industry can be fruitfully analysed in terms of the conjuncture of economic, political and cultural-ideological forces. My argument is that the transnational corporations operating through the maquila industry have created a transnational capitalist class in the border region and have reinforced a culture-ideology of consumerism, and this has gradually begun to make a significant difference to the ways in which Mexico and the global capitalist system relate to each other. The framework of this analysis is an evolving sociology of the global system. -Author
Explanations of the growth of the newly industrializing countries (NICs) by neoclassical economists and dependency theorists neglect the role of politics in shaping development strategies. Different social configurations, state structures, and ideas about development help explain the divergent policy choices made by the export-oriented East Asian NICs—Korea and Taiwan—and the more “inward-looking” countries of Latin America, particularly Mexico and Brazil. These different strategic choices, in turn, account for variations in the patterns of external “dependency” that characterize countries in the two regions.
Conventional models of the politics of economic reform tend to be
based on an assumption about the costs and benefits of reform,
known informally as the J-curve. Reforms are expected to make
things worse before they get better. This presents a classic time
inconsistency dilemma for reformist governments forced to demand
severe sacrifices from the public in the short term for the mere
promise of future gains. In response, political economy models of
the reform process have tended to stress the importance of
insulating governments from the pressures of the short-term losers
until a sufficient constituency of winners has been created with a
stake in supporting and enhancing the reforms.
In the search for a “development theory”, during the 1950s and 1960s economists on the whole gave only limited consideration to the behavior of the state. Interest was mainly focused on the role of such factors as capital accumulation, education, transfer of technology, trade strategies etc in the development process. When the state entered the analysis, emphasis was usually put on its positive contribution to development: the state provides infrastructure and overhead capital, it corrects for externalities and designs overall development plans.1
Governing parties face two fundamental tasks: they must pursue policies effectively, and they must win elections. Their national coalitions, therefore, generally include two types of constituencies—those that are important for policy-making and those that make it possible to win elections. In effect, governing parties must bring together a policy coalition and an electoral coalition. This distinction sheds light on how the transitional costs of major economic policy shifts can be made sustainable in electoral terms. It also provides a starting point for analysis of how two of Latin America's most important labor-based parties, the Peronist party in Argentina and the Partido Revolucionario Institucional (PRI) in Mexico, maintained electoral dominance while pursuing free-market reforms that adversely affected key social constituencies. Peronism and the PRI are conceived of as having encompassed historically two distinctive and regionally based subcoalitions: a metropolitan coalition that gave support to the parties' development strategies and a peripheral coalition that carried the burden of generating electoral majorities. This framework permits a reconceptualization of the historic coalitional dynamics of Peronism and the PRI and sheds light on the current process of coalitional change and economic reform.
In the existing literature, a wide disparity of opinion prevails, some authors stating that EPZs reduce host country welfare while others claim that EPZs can be an engine of growth. The mixed performance experienced by EPZs worldwide contributes to the confusion. The rapid expansion of EPZs during the last decades indicates that both Third World and East European governments consider these zones to be positive contributors to economic development. The neoclassical, the cost-benefit-related and, recently, what may roughly be termed the new growth theory approach. The new growth theory approach incorporates demonstration effects and learning-by-doing into the framework. This approach may be more fruitful, and will be discussed at some length. -from Author
This article examines the situation with respect to national and international labour standards in EPZs (export processing zones) and the major sources of pressures for change. It concludes with a look at the implications of those developments for regimes governing the establishment and operation of EPZs and export-oriented enterprises that do business under similar conditions. -from Author
Trends in location, labor force, and procurement practices in maquiladoras are examined using recent data sources. A growing proportion of maquiladoras are selecting interior locations, south of the borderlands. Once dominated by young women, the labor force is rapidly approaching gender parity. While far below prevailing rates in the United States, maquiladora wages are comparable with equivalent manufacturing sectors in Mexico. Majority ownership of maquiladoras is split almost evenly between Mexico and the U.S., however, maquiladoras have failed to develop domestic sources of materials and parts and remain dependent on imported material inputs. As the North American Free Trade Agreement is phased in, the regulatory environment of maquiladoras will change but their role as low cost assembly specialists will persist.
ABSTRACT This article examines diverse transnational corporations’(TNC) strategies in response to labor shock and specific conditions that enhance TNCs’local embedding in export processing zones (EPZs). The goal of this paper is to understand the rationale behind TNCs’choice between spatial differentiation (mobility) and spatial fmity (immobility). Based on field research and data analysis from the Masan Free Export Zone (MAFEZ) in South Korea, it is argued that TNCs do not always withdraw from EPZs in reaction to wage costs and growing labor militancy. Higher labor costs can be overridden by other advantages: existing physicalkocial inhstructure, tax benefits, fured assets, localized labor skills and technology, cultural proximity, and advantages from geographical proximity to market, raw materials, and TNCs’headquarters. This paper criticizes the overly simplistic view of capital mobility. However, TNCs that choose to remain in the EPZs use both upgrading and cheapening strategies, and their remaining does not necessarily result in upgrading labor skills or improving labor conditions. This article raises a critical question of the firm-centered view of the global enterprise literature and the local embeddedness literature of TNCs on workers’welfare. It emphasizes the important role of firms and of unions in training workers for purposes of technology and skill upgrading.
This paper first shows that, contrary to evidence from most developing countries, Korean infant industries under protection have tended to mature. It also shows that output grows faster in infant industries than in mature ones. The paper then discusses probable factors that have made the maturation and growth of infant industries possible in Korea. Overall, the empirical evidence and its interpretation support the “revisionist” rather than neoclassical or “market friendly” view in the recent debate on East Asian industrialization.
In this paper it is taken for granted that the state has played an important role in the industrialization of East Asia. Accepting this, the purpose of the paper is to determine why government policy was so effective in these countries while failing, to a great extent, in much of the rest of the developing world. The key seems to reside in the ability of the state to discipline firms which in turn is dependent upon the credibility of government policy. The latter depends on a large number of variables. This paper argues that a crucial factor is the size of the domestic market for manufactured goods
A potentially important indirect effect of export processing zones (EPZs) is the catalyst effect. The foreign affiliates attracted to the EPZs could stimulate local firms to begin to export by showing them how to produce, market, sell and distribute manufactured goods on the world market. Our results indicate a significant catalyst effect in Malaysia.
Trade strategy is prominent in current discussions of stabilization and adjustment. The orientation of trade strategy can be categorized according to revealed trade performance, or characteristics of incentive structures, or the nature of the main policy instruments. The record of trade stratedy in developing countries has been richer and more complex than currently fashionable dichotomous categorizations in terms of inward or outward orientation suggest. Many trade strategy and policy issues remain unsettled. These include the effects and optimal timing of import liberalization, the appropriate instruments for export promotion, trade policy concomitants of productivity change, and interactions with microeconomic experience and policies, among others. More country-specific and industry-specific empirical research is necessary.
The author reviews case studies of four Caribbean countries-the Dominican Republic, Jamaica, Saint Lucia and Trinidad-and briefly discusses an African country, Mauritius. He compares labour legislation, nationality of investors, technology transfer, and linkages with the rest of the economy. Of these five cases, only Trinidad failed to develop a significant export processing sector. Explanations rooted in government policy are suggested for this result. United Nations ECLAC Working Paper No. 42 (September 1996).
One of the eventual consequences of the global debt crisis was a wave of market-oriented economic reforms. This paper discusses the state of our knowledge on the political economy of this process. Why were inefficient, and often unsustainable policies maintained for so long? Why are so many governments reforming now, after decades of adherence to policies of an opposite kind? Have the reformers internalized the correct lessons from the East Asian experience? Finally, are there any helpful rules for reformers to follow in guiding their policies through complicated political terrain?
New scholarship on economic development in Korea has focused on the beneficial effects of Japanese colonialism and on certain continuities between Korea's growth strategy before and after World War II. We challenge this new revisionism. The growth record under the Japanese occupation was more modest than is often thought, there are greater discontinuities than continuities between the colonial and postwar eras, and political independence was an important factor in subsequent growth. We trace the turning point in Korea's long-term growth to political, policy and institutional changes that occurred following the military's seizure of power in 1961.
Mexico: La Industria Maquiladora Estudios e Informes de CEPAL No. 95
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Selection Bias and Self-Selection The New Palgrave Econometrics
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Dominican Republic: Initial Assessment of the Potential for Backward Linkages With Free Trade Zones Report Prepared for USAID/DR under contract no. LAC-0619-C-00-7038. Task 33 Developing Poverty: The State
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Export Processing Zones in Central America Development Discussion Papers: Central American Project Series No. 646. Cambridge, MA: Harvard Institute for International DevelopmentEPZs and the Role of TNCs
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Governance Matters. Policy Research Working Paper 2196Population and Industrial Development: Some Evidence from Trade Patterns
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The Adaptive Economy: Adjustment Policies in Small, Low-Income CountriesWhere Do High Growth Political Economies Come From? The Japanese Lineages of Korea's " Developmental State
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Killick, Tony (1993) The Adaptive Economy: Adjustment Policies in Small, Low-Income Countries. Washington, DC: World Bank. Kohli, Atul (1994) 'Where Do High Growth Political Economies Come From? The Japanese Lineages of Korea's " Developmental State " ', World Development 22 (9): 1269-93.
Export Processing Zones in Developing Countries: Results of a New Survey
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Economic Growth of Small Countries Economic Consequences of the Size of NationsThe Maturation and Growth of Infant Industries: The Case of Korea
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Export and Investment Promotion Services: Do They Work? USAID Programme and Operations Assessment Report NoCenter for Development Information and Evaluation. Méndez, Mario (1993) Reformas y lucha de interesesA Gulf Awash With Promise
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- Cressida
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Schumpeter y el Estado Dominicano: del Estado Depredador al Estado Empresarial
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Large Countries: The Influence of Size The Handbook of Development Economics, Vol IIDesert Boom: Venture Capitalists Win Approval for a Private Free-trade Zone in Israel
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Perkins, Dwight and Syrquin, Moshe (1989) 'Large Countries: The Influence of Size', in Hollis Chenery and T. N. Srinavasan (eds), The Handbook of Development Economics, Vol II. Amsterdam: Elsevier. Pollock, Robert (1994) 'Desert Boom: Venture Capitalists Win Approval for a Private Free-trade Zone in Israel', Reason 26 (5): 49-50.
The New Global Economy and Developing Countries: Making Openness WorkTwo Strategies for Economic Development: Using Ideas and Producing Ideas
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Rodrik, Dani (1999) The New Global Economy and Developing Countries: Making Openness Work. Washington, DC: Overseas Development Council. Romer, Paul (1993) 'Two Strategies for Economic Development: Using Ideas and Producing Ideas', in Proceedings of the World Bank Annual Conference on Development Economics, 1992. Washington, DC: World Bank.
The Politics of Trade in Latin American DevelopmentBig Business and the Politics of Economic Reform: Confidence and Concertation in Brazil and MexicoUrban Bias, Hinterland Response: Social Organization and Export Diversification in the Dominican Republic
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Sanderson, Steven (1992) The Politics of Trade in Latin American Development. Stanford, CA: Stanford University Press. Schneider, Ben Ross (1997) 'Big Business and the Politics of Economic Reform: Confidence and Concertation in Brazil and Mexico', in Sylvia Maxfield and Ben Ross Schneider (eds), Big Business and the State in Developing Countries. Ithaca, NY: Cornell University Press. Schrank, Andrew (2000) 'Urban Bias, Hinterland Response: Social Organization and Export Diversification in the Dominican Republic'. Unpublished Ph.D. dissertation. University of Wisconsin-Madison.
The Maquila Industry and the Making of a Transnational Capitalist Class in the United States-Mexico Border Region Changing Boundaries in the AmericasNAFTA Coalitions and the Political Viability of Neoliberalism in Mexico
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Sklair, Leslie (1992b) 'The Maquila Industry and the Making of a Transnational Capitalist Class in the United States-Mexico Border Region', in Lawrence Herzog (ed.), Changing Boundaries in the Americas. San Diego, CA: UCSD. Thacker, Strom (1999) 'NAFTA Coalitions and the Political Viability of Neoliberalism in Mexico', Journal of Interamerican Studies and World Affairs 41 (2): 57-89.
Export processing zones Export Promotion Strategies: Theory and Evidence from Developing Countries The Maquiladora Industry in Mexico: Its Transitional Role
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Warr, Peter (1990) 'Export processing zones', in Chris Milner (ed.), Export Promotion Strategies: Theory and Evidence from Developing Countries. New York: New York University Press. Weintraub, Sidney (1990) The Maquiladora Industry in Mexico: Its Transitional Role. Washington, DC: Commission for the Study of International Migration and Co-operative Economic Development.
Waiting to Export: Africa Embraces Export Processing Zones', Multinational Monitor 17
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Weissman, Robert (1996) 'Waiting to Export: Africa Embraces Export Processing Zones', Multinational Monitor 17 (July/August): 12-17.
Race to the Swift: State and Finance in Korean Industrialisation World Development Report Export Processing Zones World Development Report Trade Policy Review: Mexico. Geneva: WTO. World Trade Organisation (1996) Trade Policy Review
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