Polish Special Economic Zones: Idea versus Practice

Abstract

In 1994 special economic zones (SEZs) were introduced in Poland as an instrument supporting regional development. Initially, the idea was to open just a handful of zones located in single-function industrial regions affected by or exposed to structural unemployment. Investor benefits included a full income-tax holiday for a half of the special zone's life (typically ten years) and exemption from real-estate taxation. Subsequently, the initial conditions were considerably modified under the influence of various pressure groups, including the European Commission, the central government, major international investors, and local authorities. The tax benefits were reduced, but the eligibility was extended to new industries and new company types while the overall number of special zones consistently increased. With more than 150 locations enjoying a special status, the SEZs have lost their nature of regional policy tools, almost becoming standard forms of public aid for companies, regardless of their location. This shift in the approach to the special zones had a fundamental impact on the effects generated by the special zones. The investor appeal of areas where state support was essential to overcome a structural economic crisis was further undermined. Indeed, the bulk of investment and jobs was channeled to the zones comfortably located in southwestern Poland near large urban agglomerations with a labor market that was attractive to the investors (the Katowicka, Legnicka, and Wa-brzyska zones). However, few large and middle-sized investments were acquired by single-function industrial areas in crisis (Starachowicka and Tarnobrzeska SEZs) or by peripheral agricultural regions (Warmińsko-Mazurska i Suwalska SEZs). A notable exception to this rule is the first Polish special zone in Mielec: although peripherally located, it achieved success using the first-comer advantage it had over the subsequent zones.