Special Economic Zones
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1 Special Economic Zones Progress, Emerging Challenges, and Future Directions Edited by Thomas Farole International Trade Department World Bank Gokhan Akinci Investment Climate Department World Bank THE WORLD BANK BANK-NETHERLANDS BNPP PARTNERSHIP PROGRAM HFC International Finance Corporation Wo rid Bank Croup Multilateral Investment Guarantee Agency
2 Contents Acknowledgments Contributors Abbreviations xv xvxi xix Chapter 1 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
3 vi Contents PART I Chapter 2 Attracting Investment and Creating Jobs: Old Models and New Challenges 23 The Thin End of the Wedge: Unlocking Comparative Advantage through EPZs in Bangladesh 25 Mustafizul Hye Shakir and Thomas Farole Chapter 3 Historical Development of EPZs in Bangladesh Performance Key Success Factors Challenges for the Future Success and Stasis in Honduras' Free Zones Michael Engman Historical Development of Free Zones in Honduras Performance Key Success Factors Challenges for the Future 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
4 Contents vii 97 _ 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 to Suzhou Industrial Park The Strategy of the Chinese and Singaporean Governments Partnership Structure The Knowledge-Sharing Process Challenges to the Partnership Overcoming Partnership Challenges and Implementing Innovations Appendix 5.A. Selected Indicators: Developments at SIP, Appendix 5.B. SIP Timeline and Major Milestones Chapter 6 SEZs in the Context of Regional Integration: Creating Synergies for Trade and Investment 127 Naoko Koyama 127 Regional Trade Agreements 129 Implication of RTAS for SEZs 134 Harmonization of SEZs: Beyond Tariff Issues 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
5 viii Contents PART II Chapter 7 Moving from Static to Dynamic Gains: Can SEZs Deliver Structural Change? 157 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 159 Free Zones in the Dominican Republic 162 Performance and the Challenge of Adjustment 166 The Policy Response 172 Current Situation and s Chapter 8 Fostering Innovation in Developing Economies through SEZs 183 Justine White 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 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 s: ERZs and Economic Reform in Sub-Saharan Africa 223
6 Contents ix Note Chapter 10 Planned Obsolescence? Export Processing Zones and Structural Reform in Mauritius 227 Claude Baissac PART III Chapter 11 The Policy Environment Overview of MEPZ Performance Today's Challenges The MEPZ and Economic Reform Social and Environmental Sustainability: Emerging Issues for SEZs The Gender Dimension of Special Economic Zones Sheba Tejani Background on Trade and Gender The Economics of Female-Intensive Production in SEZs Evidence on Gender in SEZs Quality of Female Employment in SEZs Defeminization of Employment and Policy Implications Chapter 12 Low-Carbon, Green Special Economic Zones 283 Han-Koo Yeo and Gokhan Akinci 283 Low-Carbon, Green SEZs: Overview 284 Low-Carbon (Green) SEZ Framework 287
7 x Contents Low-Carbon, Green SEZs around the World: Current Status and Future Trends Index 309 Boxes 2.1 Incentives Offered in Bangladesh EPZs The Labor Counselor Program The Korean EPZ: The First Private EPZ in Bangladesh The Economic Zones Act Incentives in the Honduras Free Zones San Pedro Sula: Key Agglomeration for the Export Sector The Critical Role of Domestic Investors in Attracting FDI Instituto Politecnico Centroamericano Timeline: Tianjin TEDA in Egypt Challenges in the Lekki Free Zone in Nigeria SIP Free Trade Zone Development The Apparel Sector in the Dominican Republic Gulf and Western Establishes the Dominican Republic's First FZ in Profile of the Dominican Republic's Free Zones in Grupo M Pioneered the Strategy of Production Sharing between FZs in the Dominican Republic and Haiti The First Modern SEZ, Shannon, Ireland The Development of Backward Linkages: A Successful and Less Successful Example SEZs and Labor Circulation: A "Domestic Diaspora"? A Tale of Two Countries: Investment Climate Reform SEZs in Cambodia Targeting Productivity Improvements in the EPZs 234 Figures 2.1 Exports (US$ millions] and Contribution to National Exports (percent) of EPZ Enterprises Employment Generation in EPZs (Year-Wise and Cumulative) 32
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