How special are special economic zones: Evidence from South Asia

Abstract

This study applies quasi‐experimental designs to assess how successful the special economic zones (SEZs) have been in offering a better investment climate than what is available to firms outside of them in three South Asian countries: India, Bangladesh and Pakistan. The World Bank Enterprise Surveys' data for 2013–2014 on multiple investment climate factors have been organised into 48 onsite and offsite investment climate variables for the assessment. The study is the first to provide causal evidence based on the matching and weighting methods. The key argument is that what sets SEZs apart from other economic zones is their ability to overcome growth impeding institutions. The results however show that the SEZs could not be insulated from the wider institutional contexts in which they are embedded. There are gaps between promises and implementation on the one hand and perceived and actual improvement on the other. The paper has important implications for policymakers who seem to be in a rush to set up SEZs as a development panacea.

Do special economic zones help the diversification of African economies?

“…In South Asia, some studies assessing the impact of SEZs on export diversification have found mixed results (Aggarwal et al, 2008;Aggarwal, 2005). For example, in 2008, 40 years after the creation of SEZs, exports from Indian SEZs accounted for only 5% of overall exports; in contrast, after 2008, exports from SEZs accounted for almost a fifth and a third of exports in Bangladesh and Sri Lanka, respectively (Aggarwal et al, 2008).…”

“…In South Asia, some studies assessing the impact of SEZs on export diversification have found mixed results (Aggarwal et al, 2008;Aggarwal, 2005). For example, in 2008, 40 years after the creation of SEZs, exports from Indian SEZs accounted for only 5% of overall exports; in contrast, after 2008, exports from SEZs accounted for almost a fifth and a third of exports in Bangladesh and Sri Lanka, respectively (Aggarwal et al, 2008). In India, Lonarkar (2014) analysing the export performance of SEZs found significant differences between particular zones in their export performance and, in many cases, SEZs did not achieve target export levels.…”

A Comparative Analysis of the Japanese Overseas SEZ in Phnom Penh and the Chinese Overseas SEZ in Sihanoukville, Cambodia: from the Perspective of Porter’s Diamond Model

“…For example, some scholars suggest that SEZs display no significant economic impact on exports (Johansson & Nilsson, 1997), and the labor force skills has not significantly improved with the development of the zones over time (Sadni-Jallab & Blanco, 2002). The evaluation of the economic impact on regions is challenging due to factors such as the location, the quality of infrastructure, and regional governance, all of which can affect the performance of SEZs (Aggarwal, et al 2008).…”

Economic zones and local income inequality: Evidence from Indonesia

“…China's case with special economic zones is an especially well-documented success story (Schminke and Van Biesebroeck 2013;Wang 2013;Lu et al 2019). Evidence on the experiences of other developing countries are more mixed, suggesting that success is dependent on the institutional context and other initial conditions (e.g., Aggarwal et al 2008;Steenbergen and Javorcik 2017;Alkon 2018). In Indonesia, the importance of economic zones was studied by Winardi et al (2019), who found that zones contribute to attract more investment, generate employment and enhance regional economic growth in their neighborhood.…”