How special are special economic zones: Evidence from South Asia

Abstract

This study applies quasi-experimental designs to assess how successful the special economic zones (SEZs) have been in offering a better investment climate than what is available to firms outside of them in three South Asian countries: India, Bangladesh and Pakistan. The World Bank Enterprise Surveys' data for 2013–2014 on multiple investment climate factors have been organised into 48 onsite and offsite investment climate variables for the assessment. The study is the first to provide causal evidence based on the matching and weighting methods. The key argument is that what sets SEZs apart from other economic zones is their ability to overcome growth impeding institutions. The results however show that the SEZs could not be insulated from the wider institutional contexts in which they are embedded. There are gaps between promises and implementation on the one hand and perceived and actual improvement on the other. The paper has important implications for policymakers who seem to be in a rush to set up SEZs as a development panacea.