On the choice between capital import and labor export

Welfare Effects and Optimal Incentive Package of Export Processing Zones

“…The vector a includes such negotiable variables as wage rate and tax incentives. Our approach is thus different from previous analyses (Hamada 1974, Hamilton and Svensson 1982, 1983, Young and Miyagiwa 1987 which do not assume bargaining. In our terminology, all the previous models set s equal to zero and a is not determined optimally.…”

“…Factors cannot move freely across national boundaries. Labour is freely mobile across the two production sectors; (c) The wage rate in the manufacturing sector (sector two) is institutionally fixed at a level higher than that of the market wage rate prevailing in the agricultural sector, resulting in Harris-Todaro type unemployment, which also exists in Young and Miyagiwa (1987); (d) In the literature, there are some discussions over what is produced in the EPZ (Hamada, 1974;Hamilton andSvensson, 1982, 1983;and Wong, 1986). Empirical evidence seems to suggest that products such as semiconductors exported from EPZ are not manufactured in the domestic economy of the host country (outside the EPZ).…”

“…They are mainly interested in the welfare effects of establishing the EPZ in a distortion-ridden economy (see, e.g., Hamada, 1974;Rodriguez, 1976;Grubel, 1982;Hamilton andSvensson, 1982, 1983;Miyagiwa, 1986;Wong, 1986;Young, 1987;and Young and Miyagiwa, 1987). The EPZ is regarded as an additional sector created by piecemeal reforms ranging from a subsidy to the EPZ firms to tariff reduction on intermediate goods.…”

Shanghai Pilot Free Trade Zone and Its Effect on Economic Growth: A Counter-Factual Approach

“…Hamada (1974) used the standard two-factor, two-commodity trade model to present a theoretical framework to analyze the economic implication of a duty-free zone, where duties are exempted in order to attract foreign investments [7]. Hamilton and Svensson (1983) analyzed the connection between foreign capital in host country and its free zone and summarized that with sector-specific capital, import of capital into the protected sector decreases welfare and vice versa. If capital import into the export sector of the domestic zone is infeasible, there may be a case for establishing a free zone to attract capitals exclusively there and with a suitable tax policy, capital import into the free zone will be beneficial [8].…”

“…Hamilton and Svensson (1983) analyzed the connection between foreign capital in host country and its free zone and summarized that with sector-specific capital, import of capital into the protected sector decreases welfare and vice versa. If capital import into the export sector of the domestic zone is infeasible, there may be a case for establishing a free zone to attract capitals exclusively there and with a suitable tax policy, capital import into the free zone will be beneficial [8]. Grubel (1983) in his book outlined the benefits and costs of regulation and proposed that "free economic zones can as both a substitute and complement to whatever deregulation or reform is achieved" [9].…”