What Is A Special Economic Zone?

Understanding Special Economic Zones

A Special Economic Zone (SEZ), is somewhere where – in a sense – the best and worst utopias from a libertarian worldview can be tested.

Special Economic Zones are an area within a country whose specific laws, regulations and trading practices differ from those of the country within which they are held. They tempt FDI (foreign direct investment) from large multinational companies where before they were unnatractive.

For a multinational to invest ‘x’ amount via FDI into a country they only do so if the risk profile of the opportunity makes sense. Special Economic Zones provide a set of ingredients make sense of those risk profiles.

It is for this reason, you see more Special Economic Zones in developing nations. Developed nations such as Western Europe, North America, Australia & New Zealand are already attractive for FDI and therefore have less incentive to create an SEZ to attract FDI or trade flows.

The Promise Of A Special Economic Zone

The building blocks for special economic zones typically include several specific characteristics: (a) They exist in a geographically delimited area, usually physically secured; (b) They have single management or administration; (c) They offer benefits for investors physically within the zone; and finally (d) They offer a separate customs area (dutyfree benefits) and streamlined procedures.

The promise of the special economic zone are both static and dynamic. Static economic benefits include the likes of employment generation, export growth, government revenues, and foreign exchange earnings. Whereas the dynamic includes economic benefits such as skills upgrading, technology transfer and innovation, economic diversification, productivity enhancement of local firms, etc.

Their main task is to accelerate the economic development of regions affected by economic stagnation: poorer, less developed, bypassed by investors, affected by high unemployment.

The Potential Of Both Good & Bad

While special economic zones do offer the potential upside of all I have written above it is important to caveat that the success and destiny of any Special Economic Zone is going to come down the incentives.

An Atlas Geographic-ism – “Show me the incentive and I will show you the outcome”

If some despot decides to create an SEZ so he can benefit himself and his friends then it’s likely this Special Economic Zone will join the list of the failed and exploited.

If, on the other hand, a group of ethically minded, typically democratic group of people come together to entice investment into their country for the purposes of richening not only themselves but their surrounding community as well. Well, now you have all the right ingredients to create something special.

Examples Of SEZ – Special Economic Zones Around The World

There are reportedly over 6,500 Special Economic Zones in the world with China housing as many as 2,000 of the total.

They are disproportionately represented in developing nations, for those reasons explained above, and each possesses its own characteristics for what makes them good or what makes them bad. Without doing a specific investigation into each one I think it is incredibly difficult to make a judgement on how ‘good’ one zone is or isn’t.

My interview with Martin Preston & Aleksa Burmazovic from the Adrianople group delves into some good and bad examples, but also this Wikipiedia page is an incredible resource for listing just all of the zones throughout the world.

Learn More About Special Economic Zones From My Interview With The Adrianople Group On Everything Special Economic Zones

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