Rationale
Some academics have posited the idea that special economic zones are being put up to satisfy or answer two critical problems: (1) extreme political needs to satisfy certain pressing social expenditure requirements, and(2) the lack of other effective institutions that can prevent the State from expropriating precious land. The two reasons cited above address only short-term problems. In this context, different countries put up these SEZ for varying economic or political reasons but got entirely different experiences with them. Some countries experienced success as the zones had achieved their original purpose of enhancing economic growth due to their “spillover effects”. Others had negative consequences from their experiments with putting up SEZ. Those who experienced the wrong effects decided to eliminate SEZ altogether. In some European countries, their SEZ attracted the wrong type of investors while in India, mostly social issues came up against the continued operations of SEZ. Government’s forcible land acquisitions and displacement of the marginal farmers and poor peasants occupying the lands without social “safety nets” provoked an outcry.
But other countries such as China put up special economic zones and used them effectively as a national policy instrument to implement economic reforms and achieve economic liberalization. Perhaps it is this gradual approach by China that has made its special economic zones such a resounding success for attaining economic development. Of the more than 3,000+ special economic zones around the world today, majority of them are in China. The Chinese special economic zones have made such a huge impact on that nation’s economy. About 4% of its total population or some 200 million have been lifted out of absolute poverty since their implementation. These SEZ also made China an economic powerhouse not only in the Asia-Pacific region but also worldwide that rivals the U.S. or Japan. They made the Chinese economy an integral part of the world economy and that process is irreversible. China’s foreign exchange reserves is now the largest in the world, surpassing that of Japan’s. But some academics have questioned China’s approach as essentially flawed. They cite massive environmental degradation and labor exploitation (mostly of the migrant working class) and high social costs such as very high crime rates and even prostitution (when workers were laid off). A cogent discussion of all issues raised against the rationale of SEZ is found at this website:
Author Mr. Bhaskar Goswami explains succinctly why India will be better off not following China’s mindless export-growth strategy. His article expounds on the reasons why China’s lessons in using SEZ as an economic tool is not applicable to India as the two countries have marked differences. What works for one country may not work in another country. Other authors cited various reasons also why SEZ works well in one country and fails in another country. The theory is that the success of a SEZ depends to a certain degree on its optimal land size.