Are Special Economic Zones in Emerging Countries a Catalyst for the Growth of Surrounding Areas?

20 Pages Posted: 11 Jun 2020

See all articles by Susanne A. Frick

Susanne A. Frick

London School of Economics & Political Science (LSE)

Andrés Rodríguez-Pose

London School of Economics & Political Science (LSE) - London School of Economics

Date Written: September 2, 2019

Abstract

What is the impact of special economic zones (SEZs) in emerging countries on the economy of surrounding areas? Despite the popularity of SEZs as a policy tool in virtually all developing countries around the world, there is little evidence to date which systematically analyses this question. This paper sheds light on this topic by examining the economic growth spillovers generated by 346 SEZs in 22 emerging countries. The analysis uses night light data as a proxy for SEZ performance as well as the economic performance of the surrounding area in order to overcome the lack of reliable economic indicators when measuring SEZ performance. It also relies on a novel data set on SEZ characteristics in order to understand how far they impinge on the economic fortunes of the surrounding areas. The results indicate that SEZs have a positive impact on the economic performance of the areas surrounding the zones. However, the growth spillovers are limited in area and display a strong distance decay effect: the magnitude of the impact decreases continuously up to 50 km. Furthermore, zones located in more remote areas seem to have less of an impact on neighbouring areas. Moreover, factors assumed to have a facilitating effect, such as the manufacturing base in the country and political stability, do not seem to matter on a structural basis.

Keywords: Special economic zones, economic growth, growth spillovers, distance decay effect, developing countries

JEL Classification: L52, O14, O24, O25, R11

Suggested Citation

Frick, Susanne A. and Rodríguez-Pose, Andrés, Are Special Economic Zones in Emerging Countries a Catalyst for the Growth of Surrounding Areas? (September 2, 2019). Transnational Corporations Journal, Vol. 26, No. 2, 2019, Available at SSRN: https://ssrn.com/abstract=3623043

Susanne A. Frick (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Andrés Rodríguez-Pose

London School of Economics & Political Science (LSE) - London School of Economics ( email )

United Kingdom

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