The impact of special economic zones on structural change

Abstract

The staggered enactment of special economic zones (SEZ) laws in the last three decades provides us with a unique opportunity to identify the causal impact of place-based policies on structural change. Using difference-in-differences and event studies, we provide new evidence that SEZs have a causal impact on structural change and industrialization. We find that adopting an SEZ policy increased the GDP share of industry and decreased the shares of the agriculture and service sectors. We disentangle these effects by examining the heterogeneities by income groups and geographic regions. We find that SEZ policies have been positive and significant for industrial growth in Asia and Latin America, while having no significant effect for African countries. Overall, this study represents one of the first efforts to identify the causal impact of SEZs using a large panel dataset of more than 126 countries for 1995–2018.