Economic Impact of Special Economic ZonesIs it positive or not?

Meruyert SarsembayevaStudent of social sciences schoolNazarbayev University

FIAS, 2008

FIAS, 2008

FIAS, 2008

2

OutlineBrief history of SEZ

Economic impacts of SEZ:Positive effects Negative effects

Conclusion

3

Brief History of SEZSEZ:Geographically Delimited areasDifferent incentives to businesses

First established by the Peoples Republic of China in 1980 in Guangdong Province.(Yeung, Lee, and Kee, 2009)

Shenzhen

Zhuhai

Shantou

Support government’s efforts to:Promote Investment

Create Employment

Generate Export

4

Brief History of SEZ

The World Bank databases (2009):3000 kinds of zones in 135 countries $500 billion of direct trade industry.

Figure 1: Foreign direct investment’s increase in China from 1978 to 2008 (Wang, 2009 )

As a result:

5

Economic impacts of SEZ: positive effectsDirect Employment Impact of Special Economic Zones

Direct employment (millions people)

Percentage of national employment

Global 68.441 0.21

Asia and the Pacific 61.089 2.3%

Americas 3.084 1.15%

Western Europe .179

Central and East Europe and Central Asia

1.590 0.001%

Middle East and North Africa

1.458 1.59%

Sub-Saharan Africa 1.040 0.20%

• Employment generation

• One of the key objectives for zone development

Table 1: Direct Employment Impact of Special Economic Zones Adapted from FIAS, 2008.

Employment in the Dominican Republic’s industrial free zones rose from 500 in 1970 to almost 200,000 today. (FIAS, 2008)

The share of zone employment of national employment in the Arab Emirates 25% (FIAS, 2008)

6

Economic impacts of SEZ: positive effectsEmployment generation

Philippine eco-zones’ direct employment

91,8601994

2008 608,387

2004 406,752

Figure 2. Adapted from Lima, 2009

7

Economic impacts of SEZ: positive effectsExport developmentMajor share of exports in 2005:

Americas: • Nicaragua (79.4 %); • the Dominican Republic(77%); • Panama (67 %). (FIAS, 2008)

Asia and the Pacific: • Bangladesh (75.6 %); • Sri Lanka (67.1 %); • the Philippines (78.2 %); • Pakistan (50.3 %).(FIAS, 2008)Middle East and North Africa: • Lebanon (36.3 %); • Bahrain (68.9 %); • Morocco (61 %). (FIAS, 2008)

Sub-Saharan Africa: • Ghana (22.4 %); • Madagascar (80 %); • Mauritius (34.4 %).(FIAS,2008)

in the Philippines the eco-zones’ share of national merchandise exports increased from 22 % in 1995 to 78.2 % in 2005 (FIAS, 2008)

in Kenya the share increased from 3.5 % in 1997 to 19.3 % in 2003(FIAS, 2008)

8

Economic impacts of SEZ: positive effectsForeign direct

investment

In the Philippines, for example, the share of FDI flows going to the country’s eco-zones increased from 30 percent in 1997 to over 81 percent in 2000 (UNCTAD, 2003).

In Mexico, the share of annual FDI accounted for by maquiladora operations increased from 6 percent in 1994 to 23 percent in 2000 (Sadni-Jallab and Blanco de Armas, 2002).

In China, SEZs account for over 80 % of cumulative FDI.

PEZA 1995 - 2008

$ 30 T

EPZA1981 –1994

$778 B

EPZA1981 –1994

$778 B

38TimesBigger

14-YEAR ECONOMIC ZONE INVESTMENTS IN PHILIPPINES

Adapted from Lima, 2009

9

Economic impacts of SEZ: negative effects Exploitation of women

In Philippines the share of women workers in total SEZ workforce was 74% in 1980. It remained the same in 1994. (Aggarwal, 2007)

In Korea it was 70% in 1990 (Aggarwal, 2007)

The vast majority ofworkers in SEZ firms are young women aged 16–25 years (Aggarwal, 2007)

It is found that women are paid less than men for similar jobs and are subjected to sexual harassment and violence. (Jahan 2003)

10

Economic impacts of SEZ: negative effects

Suppression of labor standards and core labor rights

The International Labor Organization improved labor policies and practices within zones, nevertheless, significant issues remain with some countries:Restrictions on the freedom of association and collective

bargaining (in Bangladesh, the Dominican Republic, Nigeria, Pakistan, Panama, Sri lanka, Egypt)

Bans on the right to strike (in Bangladesh, Namibia, Zimbabwe, Nigeria, Panama, Turkey)

Non-observance of national labor legislation within zones (in Islamic Republic of Iran, Sudan). (FIAS, 2008 )

11

Conclusion

Positive effects:

Creation of employment opportunities

Export development

Promotion of foreign direct investment

Negative effects:

Exploitation of women

Suppression of labor standards and core labor rights

Economic impact of Special Economic Zones can be as positive as negative.

12

Conclusion

o Positive effects outweigh negative ones.o Negative effects are caused only by

employment generation.o Suppression of labor standards and core

labor rights was met only in some countries.

Therefore, economic impact of Special Economic Zones is positive.

13

Reference listAggarwal, A. 2007. Impact of Special Economic Zones on Employment, Poverty and Human

development. Indian council for research on international economic relations (194): 7-9. EBSCOhost database. http://www.ebscohost.com (accessed March 25).

FIAS. 2008. Special Economic Zones: performance, lessons learned, and implications for zone development. EBSCOhost database. http://www.ebscohost.com (accessed March 25).

Jahan, S. 2003. Reorienting development: Towards an Engendered Employment Strategy. Gender Poverty Summit. Quoted in Aggarwal, 2007, 9.

Lima, L. 2009. PEZA. Department of International Development Working Paper No. 49, University of Oxford. Quoted in FIAS, 2008, 37.

Sadni-Jallab, M. and E. B. Armas. 2002. A Review of the Role and Impact of Export Processing Zones in World Trade: The Case of Mexico. Institute of Development Studies, Brighton. Quoted in FIAS, 2008, 64.

Wang, J. 2009. The economic impact of Special Economic Zones: Evidence from Chinese Municipalities. Job Market Paper. EBSCOhost database. http://www.ebscohost.com (accessed March 25).

Wong, K. 1987. China’s Special Economic Zone Experiment: An Appraisal. Geografiska Annaler Series B, Human Geography 69 (1):27-40. Quoted in Yeung, Lee, and Kee, 2009, 223.

World Bank. 2009. The World Bank. http://search.worldbank.org/data?qterm=special+economic+zone+worldwide&language=EN&format=html (accessed March 22, 2011).

Yeung, Y., J. Lee, and G. Kee. 2009. China's Special Economic Zones at 30. Eurasian Geography and Economics 50 (2): 222-240. EBSCOhost database. http://www.ebscohost.com (accessed March 25).