Review of the Literatur1

7/30/2019 Review of the Literatur1

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REVIEW OF THE LITERATURE

Various articles on different facets of Special Economic Zone such as Performance

appraisal of Special economic zones in India, Growth of Special Economic Zones, Balanced or

Unbalanced Development of SEZs, Framework within which SEZs operate, Role of SEZs and

Export Processing Zones in the development of a country, Impact of SEZs on regional

development in Ukraine, Cost-Benefit analysis of EPZs, SEZ a global experience and best

practices, Foreign Direct Investment and the development of SEZs in China, the dynamics of

EPZs etc., which are restrictive in nature and do not give a comprehensive picture. A brief

review of some of the relevant literature is as under:

Kaul Committee (1978) reviewed Kandla Special economic zone and pointed out that

the growth of EPZs in this phase was hampered by several handicaps like the absence of a policy, absence of implementation authority to centrally coordinate and control, etc. The

committees made several concrete recommendations to improve the performance of this zone.

Tondon Committee (1981) reviewed both Kandla and Santa Cruz Special economic

zone and pointed out that the growth of EPZs in this phase was hampered by several handicaps

including procedural constraints, infrastructural deficiencies, limited concessions and limited

powers of the zone authorities to take actions on the spot resulting in inordinate delays.

D R Phillips & A G O Yeh (1987) explained the development since the late 1970s of

four Special Economic Zones in South China, in which a variety of economic change is being

piloted, has now been widely documented. These zones have certain similarities with Export

Processing Zones in some other countries within Southeast Asia, although they are more

comprehensive in development and include the provision of housing for foreigners and local

Chinese, as well as social services and many other facilities. Housing and service provision has,

to an extent, however, lagged behind the economic and physical development of the Chinese

zones. The authorities in the zones have begun to view housing as an item worthy of investment,

and the coexistence of foreign firms and joint ventures with Chinese-owned undertakings within

the zones has meant that incomes and aspirations, and hence demands for facilities, are often

higher than elsewhere in the country. This has meant an important re-examination of socialist

principles in the zones. Housing in particular is becoming a commodity which is of higher

quality than elsewhere in China and can be bought and sold, and many types of social and retail


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which the development has brought to China, have exceeded the costs. The infrastructure will

remain and will benefit China in the long term. This is the main reason for the government to

extend this type of development to the whole country.

Sugata Marjit & Hamid Beladi (1997 ) used a general equilibrium framework with

training costs to characterize a special economic zone which uses foreign capital and local labor.

Competitive equilibrium without government intervention leads to "overflow" of local labor in

the foreign enclave. A sector-specific wage tax implements the "first-best" level of employment

in the special economic zone, justifying active government intervention. Our result holds in the

extended version of the basic model.

Litwack and Qian (1998) in their report "Balanced or Unbalanced Development: Special

Economic Zones as Catalysts for Transition" developed a theory for a transition economy under

which an unbalanced development strategy that favours special economic zones emerges as aresponse to two critical problems: (i) political pressure to satisfy certain social expenditure

requirements, and (ii) the lack of institutions to constrain the state from expropriation. By

promoting the concentration of resources in some areas, a low equilibrium trap can be avoided,

while important spillover effects may be generated elsewhere. The experience of China with

special economic zones and coastal open areas is interpreted in this light. Some problems in the

Russian economy are also discussed in the context of this theory.

Austria, Myrna S. (1998) explored that t he change in the countrys investment policies

has been a crucial factor in building up confidence in the countrys economic prospects. Despite

the reform s undertaken, the countrys performance in attracting foreign direct investment is still

lower than its neighboring countries. This paper examines the factors that determine the foreign

direct investment (FDI) and its behavior over time. It also analyzes the effectiveness of the

Philippine incentive system particularly in the firms from the export processing and special

economic zones.

Wei (1999) developed a dynamic framework within which issues concerning the role of

export-processing zones in promoting economic openness and transition is assessed.

Technological learning and adaptation contribute profoundly to economic development in LDCs;

multinational activities tend to generate an externality that facilitates the process of technology

transfer and learning. The model signifies these critical factors. The study suggests, among other

things, that the concept of export-processing zones may serve as an effective policy means, when


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implemented properly, in achieving greater economic openness and growth. In this gradual

evolving development process, countries that operate export-processing zones may follow a

different transitional path and sequence from the one that is often cited in literature.

Madani (1999) stated that as an instrument for encouraging economic development,

export-processing zones have only limited usefulness. A better policy choice is general

liberalization of a country's economy. This study analyzed the impact of trade policy and its tools

on development.

Chan and Sculli (1999) examined the problems and costs involved in the transfer of

production facilities from Hong Kong to the Shenzhen special economic zone of China. The

payback period needed to recover the costs incurred in the transfer of different types of plant are

calculated. The production unit cost is also examined and compared to that of producing the

same product in Hong Kong. Costs appear to favour Shenzhen, but there are many nuisance problems of a general management nature that come up when trying to operate in a socialist

country such as China.

Kuotsai Tom Liou (1999) examined major strategies and lessons of China's post-Mao

economic development. The article first reviews the process and achievement of China's

economic development. It then analyzes major strategies emphasized in the development years,

including: the contract responsibility system, the dual price system, the special economic zones,

and administrative reform. The article further discusses important lessons that are associated

with the Chinese development experience, which consist of a reform-oriented development; an

incremental and practical approach; a two-way development; a government-guided development;

an uneven development strategy; a kindred development model; and a peace and stable

environment. The implications of the Chinese development experience are also discussed.

Copyright 1999 by The Policy Studies Organization.

OHara (2000) stated that it is a simple model with 'export-processing zone' that

exogenous inflow of foreign capital must increase welfare of an economy importing capital-

intensive goods and following protectionary policy. It should also be added that this welfare

effect depends on reasonable capital-labour ratio of the export-competing sectors in the country

concerned.

Wilmore (2000) analyzed that export processing zone in the Dominican Republic are

immiserizing and fail to transfer technology. This study contradicts this claim and recommended
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that incentives now limited to production in the zone be extended to all nontraditional export in

order to induce backward linkages and increase domestic value added.

Gustav Kristensen & Jie Zhang (2001) stated that China's policy on Special Economic

Zones has attracted increasing flows of direct foreign investment to China. The investment has

been very unequally distributed among China's 30 regions.

The article focuses on the regional economic growth as a result of the direct foreign

investment in the region and its spillover effects on neighboring regions. The unequal

distribution of direct foreign investment should in principle tend to enlarge the regional

economic differences. The article, however, shows that this is not the result of the investment.

The empirical findings highlight the impact of direct foreign investment on the Chinese

regional economies in transition.

Andrzej Ciesilik (2001) investigated the role of direct foreign investments in theregional diffusion of intellectual capital in Poland. The empirical results obtained on the basis of

the labour market analysis suggest that wages are higher in those regions of Poland which are

characterized by greater activity of foreign investors measured by their share in regional

employment. This result confirms the view that apart from capital foreign firms supply also

indirect production factors which lead to raise the productivity of the employees which in turn is

reflected in higher levels of remunerations in relation to regions with smaller commitment of

foreign investors. Direct foreign investments can be seen as one of the instruments of regional

policy, however the distribution of special economic zones whose purpose is to attract investors

does not seem to favour the decrease of the differences in development between the regions.

Zhiqiang (2002) investigated empirically whether foreign direct investment generates

externalities in the form of technology transfer. Using data on 29 manufacturing industries over

the period from 1993 to 1998 in the Shenzhen Special Economic Zone of China, he found that

foreign direct investment has large and significant spillover effects and it raised both the level

and growth rate of productivity of manufacturing industries and domestic sectors are the main

beneficiaries. He also found that some domestic sectors got benefit more than others from the

external effects of foreign direct investment. The results are robust to a number of alternative

model specifications.

Kachur (2002) examined the impact of certain incentive schemes called special

economic zones (SEZs) and territories of preferential treatment (TPDs) on investment


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distribution across Ukrainian regions. Theoretically, due to lower taxes, administrative units

(oblasts) with SEZs and TPDs should receive increased flow of investment, everything else held

constant. Empirical evidence shows that SEZs and TPDs result in significant crowding in effect

on investment at the oblast level. Yet, the analysis shows that privileged territories affect

investment distribution and induce a relocation of investment to privileged areas. However,

estimations do not show a significant impact of SEZs and TPDs on the inter-regional

distributions of investment across Ukraine. Based on the analysis, it was recommended that

SEZs and TPDs should not be extended to the developed regions if the goal is to reduce regional

disparity across different regions of Ukraine.

Makabenta (2002) analyzed the location behaviour of foreign direct investments (FDIs)

in the Philippines from 1987 1998 and pointed out the role special economic zones (SEZs) and

infrastructure play in this location decision. The effects of real income, wages, skills, SEZs,highways and ports on the probability that a manufacturing FDI firm chooses a region are

estimated using a negative binomial count model. Results yield expected signs and significant

coefficients for all variables except for skills. Regressions were also run for 1987 1992 and

1993 1998 sub-periods to examine structural changes. The stark shift of investments from Metro

Manila into other regions during the latter period shows some possible spillover effects of the

SEZs as well as infrastructure development carried out in the previous transitional sub-period.

Significant marginal effects are highest for paved highways and ports, which strongly indicate

that improvement of these two regional factors, increase the probability of FDI location.

Schweinberger (2003) analyzed that making use of a global partitioning (disintegration)

approach, a novel necessary and sufficient condition for the creation of Pareto-improving special

economic zones is derived. It is shown that the establishment of a special economic zone may be

desirable even if foreign investment has an immiserization effect. The present approach allows

not only for the use of mobile but also immobile domestically owned factors in the special

economic zone. Adopting a political economy perspective, multi household economies with and

without the feasibility of lump-sum compensation is modeled. It is shown that, subject to certain

conditions, the setting up of special economic zones accompanied by appropriate tax policies

results in an increase in government revenue. The latter may be used to finance much-needed

investment in infrastructure or the production of public goods.


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Schweinberger (2003) analyzed the welfare effects of the establishment of special

economic zones in a small open economy with tariffs on trade in final goods and binding quotas

on the imports of intermediate goods is developed. It is proven that there generally exist

allocations of binding quotas to the domestic and special economic zones, which improve

welfare. Then it is shown that the abolition of the quotas on imports into the special economic

zone may reduce welfare. Finally, the welfare effects of abolishing the quotas also in the

domestic zone are analyzed.

Jones and Cheng and Owen (2003) examined that Chinese city-level data and indicated

that differences in growth rates are far more severe than indicated in previous studies, which

typically use data at higher levels of aggregation. They estimate growth equations using city-

level data and found that the policy of awarding a special economic zone status enhances growth

substantially, increasing annual growth rates by 5.5 percentage points. Annual growth rates of open coastal cities are, on an average, 3 percentage points higher. The qualitative results on the

role of policy and the effects of FDI are similar to those of earlier studies that have employed

provincial-level data; but, quantitatively, the results are substantially different. They also provide

evidence of an indirect role of policy in the growth process through its ability to attract growth-

enhancing foreign direct investment.

Kankesu (2003) surveyed research on the performance of Export Processing Zones

(EPZs) using a benefit-cost analytical framework. The results suggest that zones in South Korea,

Malaysia, Sri Lanka, China and Indonesia are economically efficient and generate returns well

above estimated opportunity costs. On the other hand, the heavy infrastructure costs involved in

setting up the zone in the Philippines resulted in a negative net present value. The zones have

been an important source of employment in all cases and have promoted local entrepreneurs.

However, as industrial development proceeds, the gap between the market and opportunity costs

of labour narrows and the interest in EPZs tends to disappear. It may hold only if the zones

generate private profit to domestic shareholders.

Kung and Lam (2004) highlighted that since the implementation of the open door policy

in 1979, China has moved out of its economic isolation from the world and interacted actively

with globalization. The open door policy was initiated by the establishment of Special Economic

Zones. The basic purpose of the SEZs is to absorb foreign capital. For more than 20 years, the

world has witnessed the remarkable growth of Chinas economy. The role of foreign direct


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investment (FDI) in economic development has become a topic of great scholarly interests. The

first two SEZs, Shenzhen and Zhuhai presented two different scenarios for economic

development in southern China. They are similar in historical background and geographical

location but different in economic and regional development. FDI has become the key for

understanding the difference. This study revealed that FDI was not the main determinant of

economic performance in the two SEZs. FDI has greater influence on the growth of the output

value of industry and export. However, it has been less influential in the growth of employment

and capital construction investment. The study suggested that government support and domestic

investment are important in affecting the economic development of the SEZs. FDI has

contributed to a certain extent, but it is not the only factor in bringing economic prosperity to

Chinese cities in the post-reform era.

Xie (2004) explained that SEZs have been adopted by many countries, particularly in theAsia region, as a popular means by which to foster and stimulate economic development (Wong

and Chu 1985; Oborne 1986). Encouraged by the success of SEZs in other Asian regions and

countries in the 1960s and 1970s, China set up four SEZs in 1979 including one in Shenzhen. As

a result of its extraordinary growth and success, Shenzhen SEZ has itself become a positive

example and impetus for the rest of the world. Although a large number of SEZs are already in

operation around the globe (approximately 400), it is likely that a growing number of SEZs will

continue to appear, both in Asia and worldwide. This is because SEZs have generally proved to

be a successful means of fostering economic growth and prosperity. However, despite their

general effectiveness, there exist variations in the relative success of SEZs both within China,

and between China and other countries. For example, within China, Guangdong's other two

SEZs lag far behind Shenzhen SEZ (Liao 1999). Indeed, Shenzhen SEZ is perhaps the most

successful example of a SEZ in the world, having enjoyed explosive growth (Kasliwal 1998).

Shenzhen also stands in stark contrast with some rather unsuccessful SEZs in other countries,

including those near Bombay and the Kandla SEZ in India.

Mauricio (2004 ) analyzed the firm-level data from enterprises in Export processing zone

in Coasta Rice. They performed an econometric analysis of firm- and industry-specific

characteristics thought to affect the propensity of those enterprises to source intermediate inputs

in the local economy. The results suggest that the industry of the firm, the firm's capital intensity,


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the firm's age and size, whether the firm is majority-owned by locals and the proportion of the

output sold in the local market are all correlated with that propensity.

Aggarwal (2004) focused on the interplay of exports, employment, imports and value

addition and examined the data for the period between 1966, when the first EPZ was set up, and

2003, a year after the Exim Policy introduced the notion of SEZ and a year before the draft SEZ

Bill was written. Analysis of the EPZ/SEZ performance revealed that growth rates of aggregate

exports, foreign exchange earnings and employment have been falling over the years since the

late 1980s. Furthermore, it is also found that the share of EPZ/SEZ exports in total exports has

been almost stagnant since 1990. The study also examined some of the factors responsible for the

unimpressive performance of the zones in India.

Kaushik (2004) analyzed a central proposition on which much of normative economics

is founded and asserted that if two or more adults voluntarily agree to an exchange or trade andthis does not have a negative fall-out on others, then government should not stop this exchange.

Yet, on a variety of matters (hazardous work, the right to give up trade union rights in order to

work in an export-processing zone), it tends to justify government or international interventions

banning seemingly voluntary exchanges. This will explore the meaning of coercion and

voluntariness and try to articulate general principles for describing certain markets as

'obnoxious'. The principles will be applied to different labour market problems, ranging from

sexual harassment to hazardous work.

Cling and Razafindrakoto and Roubaud (2004) explained that Zone French has had a

very significant macro-economic impact in terms of exports and jobs. Thanks to Zone Franche,

before the 2002 crisis, Madagascar had become the second largest African exporter of clothing,

after Mauritius. The average wages paid in Zone Franche are lower than in the other formal

sectors of activity, which is due to the characteristics of the labour employed. On the contrary,

social conditions are better.

Glick and Roubaud (2004) examined whether EPZs are beneficial for development

remains a subject to controversy. This study analyzed the labour market impacts, using unique

time-series labour force survey data from a unique (for Africa) environment: urban Madagascar,

in which EPZs grew very rapidly during the 1990s. Employment in the EPZs exhibits some basic

patterns seen elsewhere in export processing industries of the developing world (predominance

of young, semi-skilled female workforce). Taking advantage of micro data availability, they


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premised in mankind alone ever could withstand the taunt. His provocative conclusion was that

the only unchallengeable response to the grand 'sez who?' is God sez.

This Article demonstrates the continued relevance and validity of Leff's critique by evaluating

three contemporary discussions of morality: (1) Judge Richard Posner's attack on academic

moralism; (2) Professor Edward Wilson's assertion that morality has a biological basis; and (3)

Professor Steven Pinker's attempt to distinguish between morality and our innate human nature.

Although Leff did not discuss the practical possibility of a God-based moral system, this Article

examines the practical question, focusing on three critical presuppositions implicit in seeking

God's help to discern the right: (1) God actually exists; (2) one looks to the God who actually

exists; and (3) this true God communicates what is "right" in understandable ways. While not

providing any final answers, this Article honestly grapples with the three key issues, refuting

some common objections to a God-premised morality, while acknowledging the existence of some genuine difficulties

Sivaraman, Vasant, J., Charulatha and Pillai, Vishnu (2004) The SEEZEE Ceramics

Ltd (SEZ) case, set in India, provides a framework for financial analysis and for exploring a link

between economic profits and shareholder value. The student is required to consider a critical

decision for SEZ; the decision to invest and grow as opposed to focusing on consolidation of the

existing business operations. Associated with this key decision are related issues pertaining to the

financial position of SEZ. The accounting statements point to growing earnings for the company;

however when seen in the perspective of returns expected by the market, the picture is not bright

for SEZ - this is brought out by looking at the economic profits of SEZ. From being a preferred

stock of analysts, SEZ moved quite quickly to large drops in market value. The case offers

students an opportunity to undertake an analysis of SEZ's capital structure and the company's

cash flow statements in order to address the principal decision, which has a direct bearing on

shareholder value. In addition, views from the equity capital market also enter the frame of

understanding in the course of discussion related to the company's financing mix.

Maquito, Ferdinand & U, Peter Lee (2004) The Philippines has become an export-

oriented economy, with exports increasing in significance. The electronics industry, in particular,

is a showcase of this newfound export prowess. Traditionally, comparative advantage is the

takeoff point for understanding trade patterns in economic theory. This paper tries to augment

the static nature of the theory of comparative advantage with the dynamics of the flying geese


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model of economic growth. Applied to the context of Japanese manufacturing networks in recent

years, it provides an understanding of the flow of Japanese investments overseas. Export

processing zones or special economic zones seem to have played an important role in the

electronic industry's export success by attracting sizable investments. This paper estimates an

export output production function for special economic zones in the Philippines and finds that

most exhibit constant if not increasing returns to scale. It also finds that export output tends to be

elastic with respect to labor input in most cases. This lends support to interview findings that cite

the quality of labor as an attraction of the Philippines. The paper also points out that rates of

domestic procurement by Japanese manufacturing firms remain low, suggesting poor backward

integration with the rest of the economy. Lastly, the paper ends with some comments and

suggestions on the existing draft of the Japanese Philippine Economic Partnership Agreement

available at the time of writing.Ke and Whitwell and Yao (2005) employed a general macroeconomic analysis to

describe the economic growth and performance of the Special Economic Zone (SEZ). It is shown

that not only the foreign investment make a significant contribution to the economic growth of

the Zone, but the rapid response of foreign investment to the output level is also important for

maintaining steady-state growth. The open door policy and the policy of encouraging foreign

investment have thereby played an important role in the recent development of the Chinese

economy.

Sharma (2005) visualized a SEZ as a revolutionary global development for everyone -

the developer, unit-holders, the country concerned and other countries and to mankind as a

whole. The most glaring example is China. The SEZs there have taken the country up to

unimaginably high economic levels. They have also changed the global happening of price-rise

of the commodities every year by supplying materials and commodities at as low as 30-40 per

cent of the then prevailing prices. A SEZ is a center for achievement for best performance with

respect to productivity, quality, delivery and cost control.

Seth (2005) explored that Government of India is seriously pondering over the concept of

Investment Regions modeled on Pudong, Rotterdam and other successful ventures across the

world to dot the map of India. To get the maximum possible leverage from the proposed

investment in infrastructure, the Government of India has proposed to come up with a plan for

setting up 5 or 6 such regions in India. The proposal being debated envisages a single mega


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industry led cluster that will have a planned network of high quality roads, air and sea ports and

power plants connecting every industry and development area in a geographical area of 250-300

kilometers. It is also proposed to subsume the existing SEZs in such Investment Regions. The

establishment of the SEZs has undoubtedly helped to increase the volume of international trade.

Further, a large amount of foreign investment has found its way not only into the export trade,

but also into infrastructure construction and commerce. Foreign companies have been

encouraged to establish their presence in the territories and the export industry has grown.

Advanced foreign technology has been brought in with the inflow of foreign investment. All

these factors have contributed to the growth of the Indian economy. The enactment of the SEZ

Act and its implementation should enable the Government of India to fulfill its agenda of

economic reforms as the multiplier effects on the economic activities triggered by SEZ

materialize.

The Parliamentary Standing Committee on Finance, (2006) in its 33 rd report

presented to Parliament on 17.2.2006 examined that duty foregone under these export promotion

schemes for the year 2004-2005 is Rs 41,032.56 crores as against Rs. 24,798 crores in 2001-

2002. Out of that, the duty foregone for EOU/EPZ/SEZ during 2004-2005 was more than 10000

crores. If we add 181 SEZ projects formally approved till early October 2006, and the 128 SEZ

projects approved in principle, the duty foregone on export-promotion would surpass much

beyond 1,60,000 crores estimated by the Finance Ministry. This is only revenue loss to the

central government. It does not take into account the tax exemption by State governments. No

specific data on revenue implication has been worked out SEZ wise before approval. This is

scandalous and we are witnessing a revenue scam in the name of export.

Ranjan (2006) analyzed the SEZ policy in terms of export performance, FDI inflow,

employment generation and overall physical and financial infrastructure building. This research

paper tried to investigate whether these policies are good for the country or not. SEZs are a larger

variant of Export Processing Zone (EPZ), thus performance of EPZ has also been analyzed.

Lim and Lim (2006 ) focused on the challenge of developing North Korean SEZs

successfully in terms of their ability to utilize and exploit both the competitive capabilities and

the market forces of the adjacent South Korean economy. This paper concludes that the route to

success for North Korean SEZs lies potentially is not only utilizing South Korea's market


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competitiveness more effectively, but also in attracting greater levels of investment from South

Korean private companies.

Yasuyuki (2006) investigated the relation between an export processing zone and a

pollution quota in a small country. The model supposes that the pollution target is implemented

with a marketable permit system and the government sets the quota to maximize domestic

welfare. If an increase in real income reduces marginal external damage, the pollution quota is

relieved by the formation of an export-processing zone. However, if the marginal damage is

augmented with an increase in the income, the optimal quota might be strengthened by the

formation of the zone.

Soni-Sinha (2006) explained that the EPZs are like islands of globalization. Much of the

literature on EPZs and export-oriented industries (EOIs) notes a preponderance of women who

are constructed as "cheap, and Close Curly Double Quote; "nimble fingered, and Close CurlyDouble Quote; and "docile and Close Curly Double Quote; labour. Socialist feminist thinkers

dominate this literature and this paper argued that there is a need to incorporate the insights of

postmodern feminist thinkers. The article focused on the role that language, discourse, and

subjectivity play in the gendering process in handmade jewelry production in the Noida Export

Processing Zone (NEPZ) and in the ranch production units related by common ownership in

Delhi, India. It thus gives "voices and Close Curly Double Quote; to women and men, and brings

out their agency in structuring the labour market. The study confirmed that gender division of

labour is a product of discursive and material practices that are reproduced through discourses

into which different actors invest and that feed into the gendered subjective identities of these

actors.

Feltenstein and Plassmann (2006) reviewed the trade reforms among the ASEAN

countries, which recently began removing all mutual trade barriers. The standard method to

avoid complete specialization in traded goods is to distinguish goods both by physical type and

place of origin (the so called Armington assumption). This methodology is not suitable for the

sort of intermediate goods produced by the ASEAN countries. They developed a computational

approach in the context of a non-armington dynamic general equilibrium model. Analyzing the

results of a calibrated version of the model, they found that trade liberalization is generally

welfare improving for the ASEAN countries.
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production. Due to SEZ region managed to obtain stable dynamics of growth of gross regional

product, installments to consolidated regional budget, and reduce the number of companies

failing to pay wages in time. The Fund of SEZ financed construction of blasting material plant,

silver processing line of Kolyma refinery plant; new mining complexes were set in operation.

Due to foreign economical activity development new equipment and machinery for enlargement

of output were delivered to Magadan region. Due SEZ the territ orial so called points of

growth were created. They had multiplicative direct and indirect effect on different sectors of

economy. Magadan region, which is counted as a depressive region was able to reduce the

decline of production, hold the inflation level, hold unemployment growth, improve social

condition of population. The governmental restriction of period of SEZ existence and also

problems resulting in SEZ operations are as follows: legislation instability, defective structure of

management, unreadiness of some branches of economy for effective use of preferences, lack of innovative approach. This makes to review in prospects institutional and legislative basis of SEZ.

Aggarwal (2006) described the economic rationale for SEZs; examines Indias

experience with EPZs/SEZs; discussed the context in which SEZ policy is being promoted in the

country; reviewed the arguments for and against SEZs; analyzed what went wrong, from the

perspective of the promoters of the scheme.

Aradhna Aggarwal (2007) aimed at examining the impact of Special Economic Zones

(SEZs) on human development and poverty reduction in India. It identifies three channels

through which SEZs address these issues: employment generation, skill formation (human

capital development), and technology and knowledge upgradation. It examines how the impact

of SEZs is passed through each of these channels. The study finds that the modality differs

significantly according to the characteristics of the SEZs, in particular, the level of their

development as reflected in the composition of economic activities. Within this framework, the

study examines the sectoral and economic composition of SEZ activities in India. It finds that

labour intensive, skill intensive and technology intensive firms co exist in India's zones and,

therefore argues that all the three effects described above are likely to be important in the Indian

context. Empirical findings reported in the study are based on the data collected from both

secondary sources and primary surveys. The primary survey based data was generated through

extensive interviews of entrepreneurs and workers across the three largest SEZs (in terms of their

contribution to exports and employment) : SEEPZ, Madras and Noida. The analysis reveals that


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`employment generation' has been the most important channel through which SEZs lend

themselves to human development concerns, in India. Employment generated by zones is

remunerative. Wage rates are not lower than those prevailing outside the zones. Besides, working

conditions, non monetary benefits (such as transport, health and food facilities), incentive

packages and social security systems are better than those prevailing outside the zones, in

particular, in the small/informal sector. The role of SEZs in human capital formation and

technology upgradation is found to be rather limited. The study argues that the zones' potential

could not be exploited fully in India. This could primarily be attributed to the limited success of

SEZs in attracting investment and promoting exports. The new SEZ policy gives a major thrust

to SEZs. However the creation of SEZs alone does not ensure the realization of their potential.

The government will need to play a more proactive role for effective realization of the full range

of benefits from SEZs.Abraham, Filip & Konings, Jozef & Slootmaekers, Veerle (2007) used a new

longitudinal data set of more than 15,000 Chinese manufacturing plants to show that the direct

and indirect effects of foreign direct investment on measured firm level productivity depend on a

number of firm specific features and institutional factors. We find that domestic firms engaged in

a joint-venture with a foreign partner are on average more productive, as well as exporting plants

and plants located in special economic zones. In addition, domestic firms benefit from horizontal

spillovers from foreign firms on average. However, these spillovers depend on the structure and

origin of ownership as well as on specific characteristics of the special economic zones. First,

spillovers are less likely to occur from fully foreign owned firms than from joint-ventures.

Second, spillovers from foreign direct investment originating from oversees Chinese (Hong

Kong, Macau and Taiwan) are stronger than from the rest of the world. Third, spillovers are

higher in the special economic zone aimed at attracting foreign capital to fasten the development

of Chinas own high tech industries.

Liu, Xiaozi & Heilig, Gerhard K. & Chen, Junmiao & Heino, Mikko (2007) stated

the relationship between economic development and environmental quality is a debated topic.

Environmental Kuznets curve (EKC) is one prominent hypothesis, positing an inverted U-shaped

development environment relationship. Here we test this hypothesis using data from Shenzhen,

People's Republic of China. Established in 1980 as the first special economic zone in China,

Shenzhen has developed from a small village into a large urban-industrial agglomeration with


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the highest income level in the country. The enormous expansion of infrastructure, industrial

sites and urban settlements has profoundly changed the local environment. We utilize

environmental monitoring data from Shenzhen on concentration of pollutants in ambient air,

main rivers, and near-shore waters from 1989 to 2003. The results show that production-induced

pollutants support EKC while consumption-induced pollutants do not support it.

Morris Sebastian (2007) visualized that Special economic zones following the enormous

success of China have been widely imitated. But it is to be entirely anticipated that the results

would vary greatly. Earlier avatars of SEZs in the form of Foreign Trade Zones (FTZs) and

Export Promotion Zones (EPZs) were important in the export led growth of east Asia especially

South Korea. But more than SEZs or EPZs per se it is the pursuit of export led growth policies

which underlie the success of exporting and hence of SEZs. SEZz / EPZs can be seen as a (not

necessary) microeconomic and spatial initiative in the pursuit of ELG under rather specialcircumstances by China, and South Korea and Taiwan to more limited extent in their early

phases of transformation. In other countries not pursuing ELG the success of SEZs/EPZs has

been rather modest. The roles played by the SEZs/ EPZs etc whatever their original purpose were

constrained and determined by the macroeconomic policies, trade policies, and regional

alignments. There is little meaning in studying SEZs beyond their layout and design without

reference to these broader trade and macroeconomic policies. Thus early pioneers like India

could make little out of their EPZs since the policies are severely biased against exports. We

characterise export led growth (ELG) as the strategy that has allowed the late twentieth century

industrialisations, which is far from both import substitution (as conventionally understood) and

laissez faire, and to be the simultaneous pursuit of both IS and EP. With this framework we are

able to understand the role and evolution of SEZs in a wide variety of countries. These help us to

explain and anticipate that unless the policy turns sharply to favour exports (more correctly

tradables over non tradables) the success of Indian SEZs would be modest and nowhere near that

registered in China. Following from our characterisation of Import Substitution, Export Led

Growth and Laissez Faire we also bring out the nature and performance of special zones when

these are promoted under the very same regimes.

Nallathiga (2007) analyzed that Special Economic Zones (SEZs) are insulated export

areas that offer benefits such as duty concessions to manufacturing exports, and have several

advantages, such as boost to industrial productivity, innovation, technology and management.


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The economic benefits of SEZs are well documented across the world. Their success in China,

however, drew much attention. India has also embarked on the creation of SEZs as the drivers of

industrial production and export trade. This paper examined the concept and evolution of SEZs,

overviewed international experiences with SEZ experiment, and critically evaluated the

performance of the Chinese experiment of SEZs to provide insights into their potential for

promoting industrial and regional economic development in India. Finally, it reviewed the

evolution, features and recent performance of SEZs in India, and highlighted the critical factors

for the successful development of SEZs in the Indian context.

Mukund Mate ( 2007) explained many economies have used the concept of SEZ in one or

the other form to promote exports and boost economic growth. The Indian experiment, started in

1965, did not yield the expected results till 2000. The reasons are many. However, it became

imperative to remove the shortcomings and reframe the policy and rules in the post-liberalizationera of Indian economy to achieve and maintain high growth rates and to uplift the living

standards of Indian population. Inspired by the visible success of China, which started setting up

SEZs in the 1980s, the Indian government ventured to revamp its policies regarding FDI,

exports, etc. so as to create an atmosphere that is attractive for investors, introduce new

technology and give a boost to exports. Due to lack of funds of the requisite order and need to

move forward quickly, the government decided to involve private investors (domestic and

foreign), unlike in the past. The policy was formulated in 2000 and given shape in the form of an

act in June 2005. The rules and guidelines were formulated and made effective in February,

2006. Since the implementation of these rules began, there has been a spate of bitter criticism

from different sections of the society, such as the intellectuals, sociologists, politicians from

ruling and opposition parties, and environmentalists against the government's SEZ policy. The

government has responded to this criticism, both in deeds (amendments) and words (arguments).

This paper takes a look at the current SEZ policy and brings out the grave shortcomings, that are

feared to have led to increased disparity in the country. It also suggests immediate action to

prevent further damage.

Siddhartha Mitra ( 2007) explored that on the basis of economic theory and history we

can conclude that absorption of agricultural labour is necessary for sustained economic

development of a developing country. Special Economic Zones (SEZs) constitute a medium for

such sustenance. However, the SEZ policy in India has suffered from permission being granted


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for far too many sub-optimally sized SEZs or for others serving as appendages to mega cities and

therefore inheriting all the diseconomies associated with the large size of the latter.

Mamta Baranwal ( 2007) visualized that the government is of the view that the

development of Special Economic Zones (SEZs) will lead to the development of business and

economy. In the process of establishing a SEZ, land acquisition plays an important role, which is

also a sensitive issue among different players, such as NGOs, local people, politicians,

developers, and the industrialists. Any delay in SEZ development leads to cost overrun of

projects that is painful to the developers who have to pay a huge amount towards interest on their

investment to banking institutions. This paper discusses how industries are 'migrating' from their

existing sites to SEZs for getting tax exemptions. A good example is that of Videocon which has

hired 50 farmers in 100-acre SEZ project at Aurangabad. However, Article 243G of the

Constitution provides the necessary guidelines that the local government and the PlanningCommission may examine each proposal and decide whether to continue or discontinue with the

sharing of local resources. The paper also briefly discusses the salient features of Rehabilitation

and Resettlement (R&R) Policy and concludes that India has to learn from the Chinese

strategy to implement not more than 50 SEZs initially, learn fully and carefully from one's own

experiment, and then move forward slowly to achieve a bigger target.

Oskar Weggel (2007) took the Vietnamese reformers only five years to realize that quick

development of their countrys economy could be pushed forward not only by work and capital,

but also by utilizing the factor space. Capitalizing on the experiences of several maritime

Southeast Asian countries with Growth Triangles as well as of Silicon Valley Industrial

Park , of Taiwan and of China with their Special Economic Zones , Vietnam decided in 1991

to establish its first Special Economic Zone (SEZ) in Tan Thuan/ Saigon. During the following

fifteen years three so- called Key Economic Areas and 140 Industrial Zones , Export

Processing Zones and other units with similar names have been created. The SEZ have proven

to be cornucopias on the one hand, because they helped to accelerate the transfer of capital,

technology and management to Vietnam and provided almost 1 million jobs. Furthermore they

served as catalysts for the industrialization and urbanization of some areas and served, moreover,

as models of dealing with the complexities of modernization. On the other side, the SEZ are

extremely unequally distributed over the country, and therefore tend to reinforce the social and

regional differences within Vietnam. Moreover, foreign companies to be invested in the SEZ
http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=907315http://papers.ssrn.com/sol3/cf_dev/AbsByAuth.cfm?per_id=907315


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frequently have to lead a Robinson Crusoe existence and are therefore rather insulated from the

domestic economy. Last but not least however, the Vietnamese legislation, facing the SEZ

proves frequently to be a toothless tiger.

Xiaozi Liu, Gerhard K. Heilig, Junmiao Chen, Mikko Heino(2007) analyzed the

relationship between economic development and environmental quality is a debated topic.

Environmental Kuznets curve (EKC) is one prominent hypothesis, positing an inverted U-shaped

development environment relationship. Here we test this hypothesis using data from Shenzhen,

People's Republic of China. Established in 1980 as the first special economic zone in China,

Shenzhen has developed from a small village into a large urban-industrial agglomeration with

the highest income level in the country. The enormous expansion of infrastructure, industrial

sites and urban settlements has profoundly changed the local environment. We utilize

environmental monitoring data from Shenzhen on concentration of pollutants in ambient air,main rivers, and near-shore waters from 1989 to 2003. The results show that production-induced

pollutants support EKC while consumption-induced pollutants do not support it.

Philippine Institute for Development Studies (2008) showed that in the relatively new

body of ideas dubbed new economic geography and spatial economics, we find insights on

the potentials of industrial agglomeration for regional and national economic development. This

paper looked into the evolution of industrial development in the country as a means of

elucidating the centripetal and centrifugal forces leading to agglomeration of firms and

investments. A micro perspective was provided with the case study extended into the prime

region in the country, Greater Manila Area. It was found that industrial agglomeration in the

country takes the form of special economic zones and industry clusters, indicating that the

government is taking the route toward regional dispersal of industries and the clustering strategy

to spur industrial dynamism and competitiveness and consequently, regional and national

economic development.

Menon, Sudha Venu (2008) examined growth experience in various sectors of the state

and analyzes the medium and long term growth potential of the economy. Sector-wise

performance of Gujarat economy is analyzed with a focus on key engines of growth and the

effective role of these growth engines in macro economic acceleration of Gujarat Economy.

During the nineties, Gujarat improved its economic performance remarkably in almost all

secondary and tertiary sectors. While Gujarat has very strong performance in the manufacturing,
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electricity, construction, transport & communication, and services sector, its major weaknesses is

in the primary sector. The article attempts to identify principal drivers of the economy in the

state and their contribution to economic growth. The sectors are- Energy, Oil & Gas, Agro

&food processing, Textiles, Diamonds, Petrochemicals, SEZ etc. Concluding section highlights

policy recommendations for sustained economic growth including land reform, investment in

education and infrastructure, ports, more FDI, transparency and efficiency in administration,

attaining social cohesion, macro economic management etc

Mayumi & Nobuko, Yokota (2008) considered that the establishment of Export

Processing Zones (EPZs) is a strategy for economic development that was introduced almost

fifty years ago and is nowadays employed in a large number of countries. While the number of

EPZs including several variants such as Special Economic Zone (SEZs) has increased

continuously, general interest in EPZs has declined over the years in contrast to earlier heateddebates regarding the efficacy of the strategy and its welfare effects especially on women

workers. This article re-evaluates the historical trajectories and outstanding labour and gender

issues of EPZs on the basis of the experiences of South Korea, Bangladesh and India. The

findings suggest the necessity of enlarging our analytical scope with regard to EPZs, which are

inextricably connected with external employment structures, whether outside the EPZ but within

the same country, or outside the EPZ and its host country altogether.

Ms. S. Chatterjee (2008) explored that SEZs have occupied a center stage in the national

consciousness for the past few months due to the events unfolding in Singur and subsequently

the occurrences in Nandigram (a proposed SEZ). Many economies including India have used the

concept of SEZ in one or the other form to promote exports and boost economic growth. The

Indian experiment began in 1965, complemented by new policies regarding exports, FDI etc to

attract investments and boost exports. Since the implementation of these reforms began there has

been a spate of criticisms from a number of quarters on different aspects of the SEZ policy.

Some of the economic issues raised about the SEZ policy have been improper usage of arable

land, food security, loss of low skilled jobs in agriculture, forestry, and small scale industries.

Despite the opposition the government is determined to go ahead with rapid creation of new

SEZs. At the same time the government also claims to follow a policy of economic growth that

enhances both equity and efficiency. In light of these issues, this paper tries to analyse some


23/34

economic facts related to the creation and working of the SEZs in order to arrive at the ground

realities which would help in effective decision making about SEZs .

Sarbajit Chaudhuri and Shigemi Yabuuchi (2008) analyzed the Formation of Special

Economic Zone (SEZ) using agricultural land to promote industrialization has recently been one

of most controversial policy issues in many developing economies including India. This paper

critically theoretically evaluates the consequences of this policy in terms of a three-sector Harris-

Todaro type general equilibrium model reasonable for a developing economy. It finds that

agriculture and SEZ can grow simultaneously provided the government spends more than a

critical amount of resources on irrigation projects and other infrastructural development designed

at improving the efficiency of land. Agricultural wage and aggregate employment in the

economy may also improve owing to this policy.

Saeed Khan ( 2008) stated that Export Processing Zones (EPZs) are an international phenomenon influencing increasing share of trade flows and employing a growing number of

workers. From 176 zones across 47 countries in 1986; the number had increased to over 3,000

across 116 countries by 2003. India also favours this so in the year 2000, the government

replaced the old EPZ regime by a new scheme of "Special Economic Zones" (SEZs) with several

lucrative incentives/benefits that were not available in the earlier scheme. And in 2005, it enacted

the SEZ Act and the SEZ Rules were notified in February 2006. The policy was expected to give

a big push to exports, employment and investment in SEZs. The Ministry of Commerce and

Industry claims that these zones will attract investment of about Rs 1,00,000 crore including FDI

of Rs 25,000 crore and create additional 5,00,000 direct jobs, by December 2007.

The promotion of SEZs is an attempt to deal with infrastructural deficiencies, procedural

complexities, bureaucratic hassles and barriers raised by monetary, trade, fiscal, taxation, tariff

and labour policies. These structural bottlenecks affect the investment climate adversely by

increasing production and transaction costs. Since country-wide development of infrastructure is

expensive and implementation of structural reforms would require time, due to given socio-

economic and political institutions, the establishment of SEZ is seen as an important strategic

tool for expediting the process of industrialisation. The zones offer numerous benefits such as, (i)

tax incentives, (ii) provision of standard factories/plots at low rents with extended lease period,

(iii) provision of infrastructure and utilities, (iv) single window clearance, (v) simplified

procedures, and (vi) exemptions from various restrictions that characterise the investment


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climate in the domestic economy. These benefits definitely help businesses for conducive

environment to attract local and foreign investment. The competitive advantages of zones may

also be explained within the framework of the "cluster approach". Zones are industrial clusters

where external economies of scale and other advantages help the operating firms in reducing

costs, developing competitive production systems and attracting investment, in particular, FDI.

As a result of these benefits, India started promoting SEZ with the expectation that they will

provide the engine of growth to propel industrialisation.

Nema, Pradeep and Pokhariyal, Pradeep(2008) investigated that Foreign direct

investment (FDI) as tool to boost growth of economy has been recognized by several developing

countries like Brazil, China, India, Taiwan etc. According to IMF, FDI is an international

investment to obtain a lasting interest by a resident entity in one economy in an enterprise

resident in another economy. It results in a long-term relationship between the direct investor andthe enterprise and a significant degree of influence by the investor in the management of the

enterprise including management control. FDI is usually preferred over FII as FIIs are assumed

to be attracted by short term gains and tend to leave during times of trouble. In contrast to it, FDI

investor cannot be pull out quickly, due to lasting interest in the investment made and hence,

more stable. Developing countries though are trying to attract FDI but bulk of the FDI is still

absorbed by the developed countries ($1.5 trillion in US in 2004). China and India are two Asian

giants which have lately been on the forefront of FDI investments and both countries have

evolved policies and implemented reforms to attract investments. This is mainly achieved

through the establishment of Special Economic Zones in both the countries. This Paper is aimed

at identifying the efficacy of the SEZs and their contribution towards achieving the double digit

growth in both the countries.

Krzysztof Gwosdz & Woyciech Jarczewski & Maciej Huculak & Krzysztof

Wiederman (2008) visualized In 1994 special economic zones (SEZs) were introduced in Poland

as an instrument supporting regional development. Initially, the idea was to open just a handful

of zones located in single-function industrial regions affected by or exposed to structural

unemployment. Investor benefits included a full income-tax holiday for a half of the special

zones life (typically ten years) and exemption from real -estate taxation. Subsequently, the initial

conditions were considerably modified under the influence of various pressure groups, including

the European Commission, the central government, major international investors, and local


25/34

authorities. The tax benefits were reduced, but the eligibility was extended to new industries and

new company types while the overall number of special zones consistently increased. With more

than 150 locations enjoying a special status, the SEZs have lost their nature of regional policy

tools, almost becoming standard forms of public aid for companies, regardless of their location.

This shift in the approach to the special zones had a fundamental impact on the effects generated

by the special zones. The investor appeal of areas where state support was essential to overcome

a structural economic crisis was further undermined. Indeed, the bulk of investment and jobs was

channeled to the zones comfortably located in southwestern Poland near large urban

agglomerations with a labor market that was attractive to the investors (the Katowicka, Legnicka,

and Wabrzyska zones). However, few large and middle -sized investments were acquired by

single-function industrial areas in crisis (Starachowicka and Tarnobrzeska SEZs) or by

peripheral agricultural regions (Warmisko -Mazurska i Suwalska SEZs). A notable exception tothis rule is the first Polish special zone in Mielec: although peripherally located, it achieved

success using the first-comer advantage it had over the subsequent zones.

John Litwack & Yingyi Qian (2009) developed a theory for a transition economy under

which an unbalanced development strategy that favors special economic zones emerges as a

response to two critical problems: (1) political pressure to satisfy certain social expenditure

requirements, and (2) the lack of institutions to constrain the state from expropriation. By

promoting the concentration of resources in some areas, a low equilibrium trap can be avoided,

while important spillover effects may be generated elsewhere. The experience of China with

special economic zones and coastal open areas is interpreted in this light. Some problems in the

Russian economy are also discussed in the context of this theory

Laura Alfaro and Lakshmi Iyer ( 2009) visualized in 2005, the government of India

enacted the Special Economic Zones (SEZ) Act in order to attract investment, generate export

revenues and create manufacturing jobs. However, several planned projects faced difficulties in

acquiring land for setting up the SEZ. In December 2007, the government introduced a new

piece of legislation, which proposed to extend the power of eminent domain to allow the

government to acquire land for SEZs. Was this the right response to the land acquisition

problems of private firms? Was the SEZ strategy the right one for India's economic growth?

Creskoff, Stephen & Walkenhorst, Peter (2009) described many developing countries

operate geographically delineated economic areas in the form of export processing zones, special


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industrial zones, or free trade zones. This paper provides an overview of the application of World

Trade Organization disciplines to incentive programs typically employed by developing

countries in connection with such special economic zone programs. The analysis finds that the

disciplines under the Agreement on Subsidies and Countervailing Measures have the most

immediate relevance for middle-income World Trade Organization members that are not exempt

for certain"grandfathered"programs, but will also concern other developing countries in the

future, as their exemption expires or their per-capita income passes a threshold of US$1,000.

Incentives related to special economic zones can be broadly grouped into three categories: (i)

measures that are consistent with the World Trade Organization, notably exemptions from duties

and taxes on goods exported from special economic zones; (ii) measures that are prohibited or

subject to challenge under World Trade Organization law, notably export subsidies and import

substitution or domestic content subsidies; and (iii) and measures where World TradeOrgainzation consistency depends on the facts of the particular case. The paper provides a set of

recommendations on how to eliminate questionable incentives. The single most important zone

policy reform to achieve World Trade Organization compliance is to remove all requirements to

export and permit importation of goods manufactured in special economic zones into the national

customs territory without any restrictions other than the application of import duties and taxes.

Kari Liutho (2009) analyzed approximately 20 special economic zones (SEZs) have

been founded in Russia. Four of them are innovation zones, two manufacturing zones, seven

tourism zones, three port zones and two old zones of the 1990's, namely the Kaliningrad SEZ

and the Magadan SEZ. Additionally, four gambling zones are to be opened by July 2009. The

Russian SEZs currently produce more plans than results i.e. unrealistic plans characterise the

contemporary Russian SEZs. Only the Kaliningrad SEZ and the Magadan SEZ can be classified

as fully operational, and therefore, it is far too early to make any firm conclusion on the

economic impact of these zones on the Russian economy. On the other hand, it is highly

recommendable that a follow-up of the Russian SEZs will be carried out in 3-5 years from now,

since the results of today do not necessarily describe the potential of tomorrow.

Norifumi Kawai (2009) explored that the goal of this study is to examine the

determinants of the industrial location of Japanese manufacturing foreign direct investment

(FDI) in China for the period from 1998 to 2006 at the provincial level. We stress that the

determinants of FDI strategies cannot be tested sufficiently without a fine-grained analysis of the


27/34

association between institutions and organizations. In an extension of institution theory, we

identified that institutions such as special economic zones (SEZs), a greater degree of protection

of intellectual property rights, and the weak concentration of state-owned enterprises (SOEs) act

as crucial determinants of recruiting Japanese manufacturing FDI.

=====================================================================

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