The role of export processing zones for host countries and multinationals: a mutually beneficial relationship?

Abstract

This paper examines export processing zones (EPZs) and the reasons behind their limited success in the development of host countries’ economies, especially in terms of employment, technology transfer, and foreign earnings. It is posited that (1) the extent to which host governments derive net benefits from EPZs is a function of the location-specific advantages they provide; net benefits to the host country increase as location-specific advantages increase; (2) net benefits tend to decrease at any given level of location-specific advantages as the number of countries offering equivalent advantages increases; (3) host countries’ net benefits are generally higher when EPZ operations are not insulated from the domestic economy, but this policy can be risky; and (4) there is little difference between EPZ-related foreign direct investment (FDI) and more traditional forms of FDI when the EPZ is not insulated from the domestic economy.