Formation of Special Economic Zone, Agricultural Productivity and Urban Unemployment

Abstract:     
Formation of Special Economic Zone (SEZ) using agricultural land to promote industrialization has recently been one of most controversial policy issues in many developing economies including India. This paper critically theoretically evaluates the consequences of this policy in terms of a three-sector Harris-Todaro type general equilibrium model reasonable for a developing economy. It finds that agriculture and SEZ can grow simultaneously provided the government spends more than a critical amount of resources on irrigation projects and other infrastructural development designed at improving the efficiency of land. Agricultural wage and aggregate employment in the economy may also improve owing to this policy.

Keywords: Special economic zone, fiscal concessions, agricultural productivity, rural wage, urban unemployment

JEL Classification: R13, R14, H54

working papers series