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Special Economic Zones and Sourcing Linkages with the Local Economy: Reality or Pipedream?

Abstract

In this study we investigate in how far firms in special economic zones (SEZs) have the potential to generate indirect benefits and knowledge spill-overs in the local economy through the creation of backward linkages with local suppliers. For this purpose, we map the linkages between SEZ firms and suppliers in the host economy in seven SEZs around the world, namely in Colombia, Ethiopia, Malaysia, Nigeria, Rwanda, South Africa and Vietnam, based on 103 interviews with SEZ firm managers. We furthermore analyse the challenges in the formation of these linkages. Overall, our findings suggest that, contrary to the objective of many of the zones, backward linkages between firms within SEZs as well as with firms outside the SEZs remain rather limited for the SEZs analysed. Firms primarily purchase services and minor inputs, such as packaging materials, from within or outside the SEZ. The sourcing of key inputs, however, is a major challenge due to a lack of local availability, high local prices and quality concerns. The majority of SEZ firms imports large parts of their inputs from abroad. This is true across a variety of sectors analysed, including garment, high-tech industries and services.

Resume

Nous étudions jusqu’à quel point les entreprises situées dans des zones économiques spéciales (en anglais: special economic zones, SEZ) ont le potentiel de générer des avantages indirects et la diffusion des connaissances au sein de l’économie locale, grâce à la création de des relations en amont avec les fournisseurs locales. A ce fin, nous avons mappé les relations entre les entreprises SEZ et les fournisseurs dans l’économie où ces entreprises sont situées, étudiant sept SEZ autour du monde (notamment au Cambodge, Ethiopie, Malaisie, Nigeria, Rwanda, Afrique du Sud et Vietnam) utilisant 103 entretiens avec les managers des entreprises SEZ. Par ailleurs, nous analysons les défis rencontrés dans la formation de ces relations. Dans l’ensemble, nous trouvons que—contrairement aux objectifs de la plupart des zones—les relations en amont entre les entreprises dans les SEZ, ainsi que les entreprises en dehors des SEZ, sont plutôt limités pour tous les SEZ étudiés. Les entreprises achètent des services et des facteurs de production mineurs (tels que matériels d’emballage) dans ou hors le SEZ. Le ressourcement des éléments de production clés, en revanche, est un défi majeur, à cause de la manque de disponibilité locale, les prix élevés, et les problèmes de qualité locale. La plupart des entreprises SEZ importe une grosse partie de leurs éléments de production depuis l’étranger. On retrouve ceci dans tous les secteurs analysés, y compris le secteur vestimentaire, les industries high-tech, et les services.

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Source SEZ firm interviews

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Source SEZ firm interviews

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Source SEZ firm interviews

Fig. 5

Source: SEZ firm interviews

Notes

  1. Following the employment-based classification, widely used in the Enterprise Survey of the World Bank, firms were classified as “Small”, if they had less than 20 employees; “Medium”, if they had between 20 and 99 employees; and “Large”, if they had 100 + employees.

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Acknowledgements

The authors are grateful to Raul Ramos, the editor in charge, and to two anymous revierwers for their insightful comments to earlier versions of the manuscript. We are also indebted to Maria del Rosario Alioto, James Griffiths, Rantao Li, Ghinwa Moujaes, Frederick Owen, and Anna Skowera, who performed interviews at the different sites included in the analysis. Support from Michael Wong and Elliot James Rasmuson, from the World Bank, is also acknowledged.

Funding

This research received financial support from the World Bank for collecting primary data and conducting interviews in the different SEZs.

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Correspondence to Susanne A. Frick.

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Frick, S.A., Rodríguez-Pose, A. Special Economic Zones and Sourcing Linkages with the Local Economy: Reality or Pipedream?. Eur J Dev Res 34, 655–676 (2022). https://doi.org/10.1057/s41287-021-00374-4

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Keywords

  • Special economic zones
  • Backward linkages
  • Spill-overs
  • Emerging countries

JEL Classification

  • F21
  • 014
  • 024
  • L52