Using special economic zones to facilitate development: Policy implications

Abstract

Volume 26 number 2 of the Transnational Corporations journal is a special issue dedicated to special economic zones (SEZs) and their potential as vehicles for development. The issue grew out of research and background papers that fed into UNCTAD’s World Investment Report 2019, the thematic focus of which was SEZs. In compiling this issue, we sought to contextualize the emergence of SEZs, their evolution, and the associated policy trajectories that underpin them. This introductory paper amalgamates observations from the broader academic literature, as well as the findings of the World Investment Report 2019 and its associated background papers. A common theme is that a well-designed zone will evolve with the changing comparative advantages and development level of the underlying economy, in what is described as the “SEZ development ladder”. As the locational advantages change, the emphasis and the objectives of the SEZ must also change. Reliance on “generic” locational advantages must necessarily diminish, and greater emphasis needs to be placed on developing “specialized” locational advantages. Another key finding is that the benefits of an SEZ must intentionally “leak” beyond the perimeter of the zone. The pervasiveness of the direct, indirect, and induced extra-SEZ effects beyond the geographically bounded space of the SEZ determines its success or failure. Scope remains for future research on SEZs, focusing on their sustainability, the impact of the digital economy and industry 4.0, and the involvement of new financing partners for SEZ development.