Special Economic Zones
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Special Economic Zones


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For countries as diverse as China and Mauritius, Special Economic Zones (SEZs) have been a powerful tool to attract foreign investment, promote export-oriented growth, and generate employment; for many others, the results have been less than encouraging. While the benefits and limitations of zones will no doubt continue to be debated, what is clear is that policymakers are increasingly attracted to them as an instrument of trade, investment, industrial, and spatial policy.
Since the mid 1980s, the number of newly-established zones has grown rapidly in almost all regions, with dramatic growth in developing countries. In parallel with this growth and in the evolving context of global trade and investment, zones are also undergoing significant change in both their form and function, with traditional export processing zones (EPZs) increasingly giving way to larger and more flexible SEZ models. This new context will bring significant opportunities for developing countries to take advantage of SEZs, but will also raise new challenges to their successful design and implementation.
This volume aims to contribute to a better understanding of the role and practice of SEZs in developing countries, in order to better equip policymakers in making effective decisions in planning and implementing SEZ programs. It covers some of the emerging issues and challenges in SEZs - including upgrading, regional integration, WTO compliance, innovation, the environment, and gender issues - with practical case examples from SEZ programs in developing countries.



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Published 01 August 2011
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Special Economic Zones
Progress, Emerging Challenges,
and Future Directions
Thomas Farole, Gokhan Akinci
EditorsSpecial Economic ZonesSpecial Economic Zones
Progress, Emerging Challenges, and
Future Directions
Edited by
Thomas Farole Gokhan Akinci
International Trade Department Investment Climate Department
World Bank World Bank© 2011 The International Bank for Reconstruction and Development/The World Bank
1818 H Street NW
Washington DC 20433
Telephone: 202-473-1000
Internet: www.worldbank.org
All rights reserved
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This volume is a product of the staff of the International Bank for Reconstruction and
Development / The World Bank. The findings, interpretations, and conclusions expressed in
this volume do not necessarily reflect the views of the Executive Directors of The World
Bank or the governments they represent.
The World Bank does not guarantee the accuracy of the data included in this work. The
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ISBN: 978-0-8213-8763-4
eISBN: 978-0-8213-8764-1
DOI: 10.1596/978-0-8213-8763-4
Cover design: Naylor Design, Inc.
Library of Congress Cataloging-in-Publication Data has been requested.Contents
Acknowledgments xv
Contributors xvii
Abbreviations xix
Chapter 1 Introduction 1
Thomas Farole and Gokhan Akinci
Attracting Investment and Creating
Jobs: Old Models and New
Challenges 8
Moving from Static to Dynamic Gains:
Can SEZs Deliver Structural Change? 13
Social and Environmental Sustainability:
Emerging Issues For SEZs 17
Conclusion 19
References 20
v vi Contents
PART I A ttracting Investment and Creating
Jobs: Old Models and New Challenges 23
Chapter 2 The Thin End of the Wedge: Unlocking
Comparative Advantage through EPZs
in Bangladesh 25
Mustafizul Hye Shakir and Thomas Farole
Introduction 25
Historical Development of EPZs in Bangladesh 27
Performance 29
Key Success Factors 33
Challenges for the Future 38
Conclusion 43
Notes 44
References 45
Chapter 3 Success and Stasis in Honduras’ Free Zones 47
Michael Engman
Introduction 47
Historical Development of Free Zones in
Honduras 48
Performance 49
Key Success Factors 54
Challenges for the Future 61
Conclusion 65
Notes 67
References 68
Chapter 4 China’s Investment in Special Economic
Zones in Africa 69
Deborah Brautigam and Tang Xiaoyang
China’s Overseas Special Economic Zones:
Aims and Objectives 69
China’s Overseas Zones in Africa:
Current Situation 72
China’s Overseas Zones: Mechanisms 80
Progress, Challenges, and Potential 91
Appendix 4.A. China’s Official Overseas
Economic and Trade Cooperation Zones 96Contents vii
Notes 97
References 98
Interviews 100
Chapter 5 Partnership Arrangements in the China-Singapore
(Suzhou) Industrial Park: Lessons for
Joint Economic Zone Development 101
Min Zhao and Thomas Farole
Background 101
Introduction to Suzhou Industrial Park 102
The Strategy of the Chinese and Singaporean
Governments 104
Partnership Structure 105
The Knowledge-Sharing Process 107
Challenges to the Partnership 110
Overcoming Partnership Challenges and
Implementing Innovations 113
Conclusion 115
Appendix 5.A. Selected Indicators:
Developments at SIP, 1994–2008 121
Appendix 5.B. SIP Timeline and Major Milestones 122
Notes 124
References 125
Chapter 6 SEZs in the Context of Regional Integration:
Creating Synergies for Trade and Investment 127
Naoko Koyama
Introduction 127
Regional Trade Agreements 129
Implication of RTAS for SEZs 134
Harmonization of SEZs: Beyond Tariff Issues 143
Conclusion 149
Appendix 6.A Regulations and Handbooks of
Regional Trade Agreements 150
Appendix 6.B Summary of Tariff-Related
Measures Taken by Regional Trade Agreements
for Special Economic Zone–Processed Goods 151
Notes 154
References 155viii Contents
PART II Moving from Static to Dynamic Gains:
Can SEZs Deliver Structural Change? 157
Chapter 7 When Trade Preferences and Tax Breaks Are No
Longer Enough: The Challenge of Adjustment in
the Dominican Republic’s Free Zones 159
Jean-Marie Burgaud and Thomas Farole
Introduction 159
Free Zones in the Dominican Republic 162
Performance and the Challenge of Adjustment 166
The Policy Response 172
Current Situation and Conclusions 175
Notes 180
References 181
Chapter 8 Fostering Innovation in Developing Economies
through SEZs 183
Justine White
Introduction 183
SEZs as an Instrument for Innovation 184
The Need for Absorptive Capacity and
Local Linkages 189
A Staged Approach to Building an
Innovative SEZ 197
Conclusion 200
Notes 202
References 202
Chapter 9 Early Reform Zones: Catalysts for Dynamic
Market Economies in Africa 207
Richard Auty
Context 207
The Confused Definitions and Aims of
Special Economic Zones 210
Examples of Successful SEZs 214
The Potential Role of ERZs in Sub-Saharan Africa 220
Conclusions: ERZs and Economic Reform in
Sub-Saharan Africa 223