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A review of the role and impact of export processing zones

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  • Madani, Dorsati
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    Abstract

    Traditional export processing zones are fenced-in industrial estates specializing in manufacturing for exports. Modern ones have more flexible rules, such as permitting more liberal domestic sales. They provide a free-trade and liberal regulatory environment for the firms involved. Their primary goals: to provide foreignexchange earnings by promoting non-traditional exports, to provide jobs and create income, and to attract foreign direct investment and attendant technology transfer and knowledge spillover. Domestic, international, or joint venture firms operating in export processing zones typically benefit from reduced red tape, flexible labor laws, generous long-term tax holidays and concessions, above-average communications services and infrastructure (and often subsidized utilities and rental rates), and unlimited duty-free imports of raw and intermediate inputs and capital goods needed for production. In this review of experience, the author concludes that export processing zones have limited applications; the better policy choice is to liberalize a country's entire economy. Under certain conditions - including appropriate setup and good management - export processing zones can play a dynamic role in a country's development, but only as a transitional step in an integrated movement toward general liberalization of the economy (with revisions as national economic conditions change). The world Bank, writes the author, should be cautious about supporting export processing zone projects, doing so only on a case-by-case basis, only with expert guidance, and only as part of a general reform package. It should not support isolated export processing zone projects in unreformed or post-reform economies (in the last case they might encourage backsliding on trade policy). In general, if a policy is good for the economy as a whole, it is likely to be good for an export processing zone. Sound policy will encourage: 1) Sound, stable monetary and fiscal policies, clear private property and investment laws, and a business-friendly economic environment. 2) Moderate, simplified (but not"over-friendly") corporate tax schedules, and generally liberal tariffs and other trade taxes. 3) Private development and management of export processing zones and their infrastructure and unsubsidized utilities. 4) Labor laws that are business-friendly but do not abuse workers'safety and labor rights. 5) A better understanding of the impact of industrial refuse on the quality of air, soil, water, and human health.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2238.

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    Date of creation: 30 Nov 1999
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    Handle: RePEc:wbk:wbrwps:2238

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    Keywords: Labor Policies; Environmental Economics&Policies; Economic Theory&Research; Decentralization; Banks&Banking Reform; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Foreign Trade Promotion and Regulation; Banks&Banking Reform; Environmental Economics&Policies; Economic Theory&Research;

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    References

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    1. Romer, Paul, 1993. "Idea gaps and object gaps in economic development," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 543-573, December.
    2. Devereux, John & Chen, Lein Lein, 1995. "Export Zones and Welfare: Another Look," Oxford Economic Papers, Oxford University Press, vol. 47(4), pages 704-13, October.
    3. Hamid Beladi & Sugata Marjit, 1992. "Foreign Capital and Protectionism," Canadian Journal of Economics, Canadian Economics Association, vol. 25(1), pages 233-38, February.
    4. Easterly, William & DEC, 1993. "How much do distortions affect growth?," Policy Research Working Paper Series 1215, The World Bank.
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    Cited by:
    1. Triyakshana Seshadri & Virgil Storr, 2010. "Knowledge problems associated with creating export zones," The Review of Austrian Economics, Springer, vol. 23(4), pages 347-366, December.
    2. Blomström, Magnus & Kokko, Ari, 2003. "The Economics of Foreign Direct Investment Incentives," CEPR Discussion Papers 3775, C.E.P.R. Discussion Papers.
    3. Yasuyuki Sugiyama, 2006. "Export Processing Zones and Environmental Policy," Discussion Papers in Economics and Business 06-22, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    4. Cling, Jean-Pierre & Razafindrakoto, Mireille & Roubaud, Francois, 2005. "Export processing zones in Madagascar: a success story under threat?," World Development, Elsevier, vol. 33(5), pages 785-803, May.
    5. Islam, Roumeen, 2004. "What are the right institutions in a globalizing world? and... can we keep them if we have found them?," Policy Research Working Paper Series 3448, The World Bank.
    6. World Bank, 2002. "Long-Term Policy Options for the Palestinian Economy," World Bank Other Operational Studies 15274, The World Bank.
    7. World Bank, 2004. "Ukraine : Trade Policy Study, Volume 2. Main Report," World Bank Other Operational Studies 15656, The World Bank.
    8. Aradhna Aggarwal, 2007. "Impact of Special Economic Zones on Employment, Poverty and Human Development," Working Papers id:1111, eSocialSciences.
    9. Walkenhorst, Peter & Malouche, Mariem, 2006. "Trade Policy and Export Performance in Morocco," MPRA Paper 23119, University Library of Munich, Germany.
    10. Hu, Zhining & Zheng, Jianghuai & Wang, Jialing, 2011. "Impact of industrial linkages on firm performance in development zones," MPRA Paper 33127, University Library of Munich, Germany.
    11. Mohammad Hanif Akhtar, 2003. "An Evaluation of Karachi Export Processing Zone: A Preliminary Investigation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 42(4), pages 927-940.
    12. Schrank, Andrew, 2008. "Export Processing Zones in the Dominican Republic: Schools or Stopgaps?," World Development, Elsevier, vol. 36(8), pages 1381-1397, August.
    13. Morisset, Jacques, 2000. "Foreign direct investment in Africa : policies also matter," Policy Research Working Paper Series 2481, The World Bank.
    14. World Bank, 2005. "Ukraine's Trade Policy : A Strategy for Integration into Global Trade," World Bank Publications, The World Bank, number 7431, January.
    15. World Bank, 2006. "Fostering Higher Growth and Employment in the Kingdom of Morocco," World Bank Publications, The World Bank, number 7114, January.
    16. Walkenhorst, Peter & Cattaneo, Olivier, 2006. "Trade, Diversification and Growth in Nigeria," MPRA Paper 23735, University Library of Munich, Germany.

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