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My New Book on the Political Economy of SEZs

Jean-Paul Gauthier

Special economic zones (SEZs) are sometimes powerful tools of development and industrialization. Alas, in too many occasions, SEZs have shown their destructive sides, as tools for rent-seeking and ways to avoid beneficial reforms. In The Political Economy of Special Economic Zones, I show the ways in which SEZs are beneficial and in which ways they do damage.

Rather than a macroeconomic analysis of zones, this requires a close look at the political economy problems and benefits of special economic zones. SEZs are commonly deemed successful when they attract investors. I show why this is a flawed view of zones and explain the institutional and political contexts that are the true sources of SEZ success.

The book also deals with the challenge that the World Trade Organization poses to SEZs and how SEZs can play a role in the development of more complex global value chains. It ends with a preview of what the SEZ landscape may look like in the future. The Political Economy of Special Economic Zones is available now on Amazon by clicking the highlighted title or this link.

FDI Intelligence's Global Free Zones of the Year

JP Gauthier

FDI Intelligence's 2016 Global Free Zones of the Year is a great resource on the current state-of-play for free zones, SEZs, EPZs, and other zones around the world. The publication shines a light on zones that even seasoned zones professionals may not have otherwise heard about. We don't agree with the order of some of the rankings (the rationales for the zones in Gabon, Uzbekistan, and Cuba aren't as strong as the ranking suggest) but it is nevertheless a useful overview of what is out there.

China's Proposed Latin American SEZs

JP Gauthier

Image by Casa Presidencial, via the  Tico Times , 6 Jan. 2015

Image by Casa Presidencial, via the Tico Times, 6 Jan. 2015

As reported by Zach Dyer at the Tico Times, China will help develop special economic zones (SEZs) in Costa Rica according to a strategic partnership agreement signed in Beijing earlier this month between Chinese President Xi Jinping and Costa Rican President Luis Guillermo Solís.  The agreement came in the midst of a forum hosted by Beijing for 33 Latin American and Caribbean countries.  Feasibility studies are planned for October 2015.

Chinese supported SEZs would be a major step in China's decade-long ambition to expand its global influence.  As discussed in WEPZA Board of Advisor Deborah Brautigam's excellent book, The Dragon's Gift:  The Real Story of China in Africa, China has invested heavily in Africa and its many SEZs, over the last several decades, with a mixed normative impact on the continent.  This investment, which has helped fuel China's growth and global prominence, has been a major theme in global geopolitics. 

The proposed SEZs in Costa Rica signify a second step in this theme:  the expansion of Chinese influence into Latin America and the Caribbean, as well as Africa.  Some view the expansion as a threat to U.S. interests in the region, while others, such as Costa Rican Foreign Minister Manuel Gonzales, see no reason why Costa Rica can't maintain strong ties to both the U.S. and China.  

Japan's Quest to Pilot Reforms through Special Economic Zones

JP Gauthier

The Economist has published a string of articles this year on Japanese Prime Minister Shinzo Abe's efforts to use special economic zones, or tokku, to pilot massive structural reforms to the Japanese economy and society.  Like many other leaders, he views SEZs as a way of initiating reforms that are not politically possible at a national level.  Some of the reforms Abe would like to initiate in the zones are quite interesting and could have profound impacts on Japan if implemented.

In the tokku, taxes would be lower, immigration would be more open, and building regulations would be relaxed.  Japanese robotics companies would benefit from greater freedoms, such as the ability to introduce driverless cars and robots that interact more in society.

Perhaps the most important attempted reform, and the reform that faces the strongest opposition, is that in the tokku, businesses could hire and fire workers––something almost impossible in Japan today.   Abe believes this reform will increase hiring, though the opposition fears that inequality will result.  

Significantly, the proposed zones are huge in size––including Tokyo and other big metropolises.  Reforms enacted there would affect a quarter of the Japanese workforce.

Read the most recent full article and post your thoughts below.

Japan Macro Advisors believes that opponents will make implementation difficult, which will greatly water down the strength of the reforms.