Abstract
This chapter critically examines the theoretical propositions that seek to explain the rationale and economic impact of special economic zones (SEZs) in developing countries and argues that the existing theoretical approaches do not fully capture the rationale and effects of SEZs. For a better understanding of the socio-economic impact of SEZs, it proposes an alternative approach based on the economics of agglomeration, in general, and industrial clustering, in particular. It integrates relevant theoretical accounts with an agglomeration-theoretic framework to develop an eclectic theoretical framework of their relevance and impact and provides a comprehensive criteria for their evaluation. It argues that SEZs are not an alternative strategy and, therefore, there is nothing ‘second best’ about them. They need to be viewed as a component of the broader industrial strategy and their development needs to be synthesized with the overall cluster development policy.
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