The Past, Present, and Future of Special Economic Zones and Their Impact

ABSTRACT Special economic zones (SEZs) have been used by many developing countries as a policy tool to promote industrialization and economic transformation. Since the initiation of the first modern zone in Shannon, Ireland, special economic zones have evolved in many ways, from an initial ‘enclave’ nature towards today’s ‘Economic Zone 5.0’, which is built on emerging digital technologies and well integrated with urban development. The special economic zones represents a new unilateral compromise between the state and market, while still contributing to economic globalization, by presenting itself as a complementary or as an alternative approach to integrate with the global market in addition to the international economic law instruments. Despite the prevalence of special economic zones worldwide, their performance and impact on the economy and structural transformation are quite mixed. Among the many lessons learned from successful special economic zone programmes, the key elements include a strategic location, integration of zone strategy with the overall development strategy, understanding the market and leveraging comparative advantage, and, most importantly, ensuring that zones are ‘special’ in terms of a business-friendly environment—especially a sound legal and regulatory framework and an embodiment of sustainability and resiliency towards various external shocks like today’s COVID-19 pandemic.