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Free economic zones and firm performance: Evidence from Korea

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  • Kim, Jung-Wook
  • Lee, Jong-Wha

Abstract

Policies involving what are known as Free Economic Zones (FEZs) have been popular among countries interested in attracting foreign investment. While foreign investment has generally benefited the receiving country, the effect of market rivalry is known to reverse this impact. Our paper tests, using listed and unlisted companies in Korea, whether the designation of a Korean FEZ affects firms in the region positively in terms of sales, profit, productivity, and export activities. We find that FEZ-designated firms outperform those in the other regions. However, the findings also suggest that the impact of FEZ designation takes years to unfold and that success requires consistent effort.

Suggested Citation

  • Kim, Jung-Wook & Lee, Jong-Wha, 2025. "Free economic zones and firm performance: Evidence from Korea," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 47(2), pages 81-97.
    • Handle: RePEc:zbw:kdijep:320444
    DOI: 10.23895/kdijep.2025.47.2.81
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • H83 - Public Economics - - Miscellaneous Issues - - - Public Administration
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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