DP12840 Towards economically dynamic Special Economic Zones in emerging countries

Author(s): Susanne A. Frick, Andrés Rodríguez-Pose, Michael D. Wong
Publication Date: April 2018
Keyword(s): developing countries, Economic Growth, industrial policy, Special Economic Zones
JEL(s): L52, O14, O24
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=12840

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 â?? proxied by economic growth â?? 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.