Export Processing Zones and Economic Development in Asia Rondinelli, Dennis A. American J. of Economics and Sociology, Vol. 46, No. 1, Jan. 1987

Source: ILO Data Base on Export Processing Zones, ILO April 2007

How are the Zones Developed? Asian countries’ FTZs and EPZs  Compare with other regions Reasons?  Attracting foreign investment  Stimulating economic development  Generating employment  Earning foreign exchange

Spreading of such zones to other regions  Singapore and Hong Kong as FTA (Free Trade areas)  Korea and Taiwan as EPZs  India, Malaysia, the Philippines, Indonesia, Sri Lanka

Expectations from the Zones Model on the Europe experiences (in 1950s)  External stimuli for economic growth in disfavored regions such as rural sectors Only advantages has been emphasized Disadvantages must be considered seriously!  Potentially adverse effects should be considered  Intra- and inter-regional economic disparity can be exacerbated Implications on Policy makers and MNC

Zones as Instruments of Economic Development Policy What’s so attractive about FTZs and EPZs?  Reduce/eliminate the usual custom procedures  Without duties and intervention  Sea and air port facilities  Other physical infrastructures  Pool of workers  No import quota and foreign exchange control  No bribery  efficient administration of the zones  Political and economic stability

South Korean’s incentives  Tax exemptions Shenzhen’s preferential treatments for foreign investments Job’s creation  3.5 mil in Asia  100,000jobs in China zones  120,000 in Masan, Korea  77,000 in Taiwan, etc

Other benefits of zones  Backward and forward linkages with local industries  Multiplier and Spread effects  “Demonstration effect” For what? Trade liberalization, modern technology, and development of industrial workforce

The Impact of Free Trade Zones on Economic Development Criticisms: Adverse effects of FTZs/EPZs Financial ROI in public vs. private zones? China’s case?  Investment level, $840mil in retail trade << costs of building up the zones Retail rather than manufacturing, $ 1bil. (in Shenzhen)  Investment in tourist facility (in Zuhai) Jakarta’s labor-intensive and low wage Sri Lanka  In garment industry, “the only local input is unskilled female workers” with 50 cent a day Kandala in Gujurat, India, most FTZs Indian owned, mostly failed

Specific Criticisms (list) High investment costs per job created Low Wage, Law Quality, Low Stability Employment  Food processing, garment and Textile etc.  “Footloose” problems of foreign capitals  Government’s interest in FTZs weakened  Young, unmarried, unskilled labor  Employment opportunity for “disadvantaged” group, like bumiputera (indigenous Malays) in Penang, Malaysia

EPZs as Economic Enclaves “Enclave”  Expectations collide between ( ) and ( )  Few backward or forward linkages with local economies  Foreign investors like “Country within a country” FTZs are just like Hilton Hotels don’t care what nationalities the workers are

Adverse Local Economic and Social Effects Restructure the local economy in ways that are adverse to the poor  Much dependency on the zone, esp manufacturing  Multinational corporation's dominating role in the host countries  Rapid urbanization-> population growth New Investment or know-how build-up are achieved ? Local social and economic problems-illegal trading, smuggling, forex speculation, bribery and fraud in Shenzhen Land price increase/strains on their capacity to meet the needs of large numbers of workers in Penang

Policy and Planning Implications If social equity has a high priority in policy EPZ’s success, Import substitution => export promotion in Korea & Taiwan Short-term benefit outweighs long-term, philosophical inconsistencies  How to resist the corrosive influences of Bourgeois ideology? (in China) Long-term costs dominate ?  EPZ’s Undesirable social and economic impacts in China

Your advice as a development consultant?  Linkage effect  local economies  Living conditions of the zones (urbanization, over- population, etc.)

Backward linkage  To support local suppliers of raw materials, inputs, services, and semi-finished goods to EPZ firms Forward linkage  To support logistics and distribution providers, sales/marketing agencies