Special Economic Zones Public Disclosure Authorized Progress, Emerging Challenges, and Future Directions
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Public Disclosure Authorized Public Disclosure Authorized DIRECTIONS IN DEVELOPMENT Trade Special Economic Zones Public Disclosure Authorized Progress, Emerging Challenges, and Future Directions Thomas Farole, Gokhan Akinci Editors Public Disclosure Authorized Special Economic Zones Special 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 1 2 3 4 14 13 12 11 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 boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development / The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Center Inc., 222 Rosewood Drive, Danvers, MA 01923, USA; telephone: 978-750-8400; fax: 978-750-4470; Internet: www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: [email protected]. 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 Notes 19 References 20 v vi Contents PART I Attracting 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 96 Contents 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 155 viii 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 Contents ix Note 224 References 224 Chapter 10 Planned Obsolescence? Export Processing Zones and Structural Reform in Mauritius 227 Claude Baissac Introduction 227 The Policy Environment 227 Overview of MEPZ Performance 230 Today’s Challenges 235 The MEPZ and Economic Reform 237 Conclusion 240 Notes 243 References 244 PART III Social and Environmental Sustainability: Emerging Issues for SEZs 245 Chapter 11 The Gender Dimension of Special Economic Zones 247 Sheba Tejani Introduction 247 Background on Trade and Gender 248 The Economics of Female-Intensive Production in SEZs 253 Evidence on Gender in SEZs 255 Quality of Female Employment in SEZs 262 Defeminization of Employment 266 Conclusion and Policy Implications 269 Notes 272 References 274 Chapter 12 Low-Carbon, Green Special Economic Zones 283 Han-Koo Yeo and Gokhan Akinci Introduction 283 Low-Carbon, Green SEZs: Overview 284 Low-Carbon (Green) SEZ Framework 287 x Contents Low-Carbon, Green SEZs around the World: Current Status and Future Trends 304 References 306 Index 309 Boxes 2.1 Incentives Offered in Bangladesh EPZs 37 2.2 The Labor Counselor Program 40 2.3 The Korean EPZ: The First Private EPZ in Bangladesh 42 2.4 The Economic Zones Act 43 3.1 Incentives in the Honduras Free Zones 50 3.2 San Pedro Sula: Key Agglomeration for the Export Sector 58 3.3 The Critical Role of Domestic Investors in Attracting FDI 60 3.4 Instituto Politécnico Centroamericano 65 4.1 Timeline: Tianjin TEDA in Egypt 75 4.2 Challenges in the Lekki Free Zone in Nigeria 93 5.1 SIP Free Trade Zone Development 116 7.1 The Apparel Sector in the Dominican Republic 160 7.2 Gulf and Western Establishes the Dominican Republic’s First FZ in 1969 162 7.3 Profile of the Dominican Republic’s Free Zones in 2010 164 7.4 Grupo M Pioneered the Strategy of Production Sharing between FZs in the Dominican Republic and Haiti 174 8.1 The First Modern SEZ, Shannon, Ireland 186 8.2 The Development of Backward Linkages: A Successful and Less Successful Example 194 8.3 SEZs and Labor Circulation: A “Domestic Diaspora”? 195 8.4 A Tale of Two Countries: Investment Climate Reform 196 8.5 SEZs in Cambodia 199 10.1 Targeting Productivity Improvements in the EPZs 234 Figures 2.1 Exports (US$ millions) and Contribution to National Exports (percent) of EPZ Enterprises 30 2.2 Employment Generation in EPZs (Year-Wise and Cumulative) 32 Contents xi 2.3 Comparison of Average Wages and Benefits of Unskilled Workers in SEZs 34 3.1 Employment in Free Zones 53 3.2 Gross Value of Production in Maquilas 63 5.1 Governance Structure of SIP 106 5.2 Current Ownership Structure of CSSD 108 6.1 Total Notifications Received by Year, 1948–2009 131 6.2 Network of Plurilateral Groupings in Africa and Middle East 132 6.3 Evolution of the Share of Intra-PTA Imports in Total Imports, 1970–2008 135 6.4 Classification of Various Tariff-Related Measures by RTA 140 7.1 Index of Growth (1995 = 100) in the Free Zone Program 165 7.2 Free Zone Value Added (US$m) and Contribution to GDP, 1995–2008 167 7.3 Free Zone Exports (US$ million) and Share of National Exports 168 7.4 Index of Free Zone Exports: Textile versus Nontextile (1995 = 100) 169 7.5 Comparative Growth in U.S. Imports of Knitwear by Key Countries, 2004–08, and U.S. Imports of Apparel and Textiles by Key Country, 2009 and 2010 170 7.6 Evolution of FZ Employment, 1969–2008 171 8.1 The Republic of Korea’s Gradual Buildup of R&D Capacity 192 8.2 Island to Catalyst SEZs 200 8.3 SEZs from Linkages and Technological Capabilities to Upgrading 201 10.1 Employment Data 230 10.2 Investment Data 231 10.3 Exports