Working Paper: CEPR ID: DP12840
Authors: Susanne A. Frick; Andrés Rodríguez-Pose; Michael D. Wong
Abstract: Despite a massive recent proliferation of Special Economic Zones (SEZs), there is virtually no quantitative research on what drives their dynamism. The aim of this paper is to address this gap and analyse the factors influencing SEZ performance – proxied by economic growth – in emerging countries. The paper relies on two novel datasets, using night-lights data to proxy for SEZ performance and containing a wide range of SEZ policy variables and characteristics across a large number of countries. The main results of the analysis indicate that a) zone growth is difficult to sustain over time; that b) trying to upgrade the technological component or value-added of the economy through SEZ policies is often challenging; and that c) zone size matters: larger zones have an advantage in terms of growth potential. Furthermore, country context significantly determines SEZ performance. Firms look for low cost locations, but in close proximity to large cities. Proximity to large markets as well as pre-existing industrialization also increase SEZ performance. In contrast, incentives and other program specific variables are highly context-specific and not structurally correlated with SEZ performance.
Keywords: special economic zones; developing countries; industrial policy; economic growth
JEL Codes: O14; O24; L52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| number of years a zone has been in operation (C41) | growth rate (O40) |
| technological component or value-added focus (O30) | SEZ performance (P27) |
| size of the SEZ (R12) | growth potential (O40) |
| proximity to large cities (R11) | SEZ performance (P27) |