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Special Economic Zones in Developing and/or Transition Economies: a Policy Proposal
Author(s) -
Schweinberger Albert G.
Publication year - 2003
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/1467-9396.00407
Subject(s) - economics , investment (military) , foreign direct investment , pareto principle , special economic zone , production (economics) , government (linguistics) , revenue , politics , compensation (psychology) , economic system , international economics , macroeconomics , china , finance , psychology , linguistics , operations management , philosophy , political science , psychoanalysis , law
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, multihousehold economies with and without the feasibility of lump‐sum compensation are modeled. It is shown that, subject to a certain condition, 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.