The High Stakes of Rapid Growth vs. Sustainable Development: Evaluating a New Generation of SEZ Policy Reform

Special economic zones (SEZ) are designed to stimulate the economic development of a host country through export-oriented foreign direct investment (FDI).  The dominant policy is open door trade that has effectively incentivized FDI and led to enormous growth, best exemplified by the now famous SEZ in Shenzhen, China.  Nearly 4,000 subsequent SEZs have tried to replicate its 58% annual growth rate of the 1980s, but the historically contextualized elements that generated that success cannot be reproduced.  Nonetheless, falling short of the Shenzhen mark leaves substantial room for positive GDP growth that justifies the continued global development of thousands of SEZs.  Remarkably, research shows that few SEZs actually contribute to the development of host economies.  Their proliferation has produced unwelcome externalities such as labor exploitation and environmental degradation in a race to the bottom to gain comparative advantage.  A new generation of SEZ policy reform is emerging to address the negative consequences of open door growth policy by employing sustainable development principles.  I assess whether these changes in policy and governance have led to a more dynamic development of host economies and if long-term strategies will bring both firms and nations closer to their economic development goals.

Puerto Madero from the river

Puerto Madero from the highway