Special Economic Zones and Local Economic Activities in Ethiopia

Abagna, Matthew Amalitinga (2023): Special Economic Zones and Local Economic Activities in Ethiopia.

Abstract

Do Special Economic Zones (SEZs) increase local economic activities in developing countries? This paper explores this question by examining the aggregate district economic effects of SEZs, a place-based development policy in Ethiopia. The study relies on time and district variation in the establishment of SEZs to evaluate the within-district changes in nighttime light, a proxy for district economic activities. The Difference-in-Difference estimates show an increase in the average nighttime light of SEZs districts after the SEZs became operational. The effect varies with the SEZs type. SEZs with bigger land sizes and SEZs that operate in sectors other than textiles, garment and the leather industry tend to generate more economic activities in the SEZs districts. The impact is also positive and significant for publicly managed SEZs relative to privately managed SEZs. The study further explores whether SEZs generate spillover effects on the economic activities of districts bordering the SEZs districts. Overall, there is no consistent evidence that the policy has any significant effect on the economic activities of the SEZs commuting districts.

• Item Type: MPRA Paper
• Language: English
• Keywords: Special Economic Zones, Economic Activities, Nighttime light, Ethiopia, Sub-Saharan Africa
• Subjects: F - International Economics > F1 - Trade > F13 - Trade Policy ; International Trade Organizations; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O25 - Industrial Policy; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O38 - Government Policy

References

Abadie, A. and Gardeazabal, J. (2003). The economic costs of conflict: A case study of the Basque Country. American Economic Review, 93(1):113–132.

Alder, S., Shao, L., and Zilibotti, F. (2016). Economic reforms and industrial policy in a panel of Chinese cities. Journal of Economic Growth, 21(4):305–349.

Alkon, M. (2018). Do special economic zones induce developmental spillovers? Evidence from India’s states. World Development, 107:396–409.

Baldwin, R. E. and Okubo, T. (2006). Heterogeneous firms, agglomeration and economic geography: spatial selection and sorting. Journal of Economic Geography, 6(3):323– 346. Borusyak, K., Jaravel, X., and Spiess, J. (2021). Revisiting event study designs: Robust and efficient estimation. arXiv preprint arXiv:2108.12419.

Callaway, B. and Sant’Anna, P. H. (2021). Difference-in-differences with multiple time periods. Journal of Econometrics, 225(2):200–230.

Cheesman, A. (2012). Special economic zones & development: Geography and linkages in the Indian EOU scheme. Development Planning Unit, University College London.

Duranton, G. and Puga, D. (2004). Micro-foundations of urban agglomeration economies. In Handbook of Regional and Urban Economics, volume 4, pages 2063–2117. Elsevier.

Egger, P. H., Koethenbuerger, M., and Loumeau, G. (2022). Local border reforms and economic activity. Journal of Economic Geography, 22(1):81–102.

Elvidge, C. D., Baugh, K. E., Anderson, S. J., Sutton, P. C., and Ghosh, T. (2012). The night light development index (nldi): a spatially explicit measure of human development from satellite data. Social Geography, 7(1):23–35.

Farole, T. (2011). Special economic zones in Africa: Comparing performance and learning from global experiences. World Bank Publications.

Farole, T. and Moberg, L. (2014). It worked in China, so why not in Africa? The political economy challenge of special economic zones. Technical report, WIDER Working Paper.

Frick, S. A. and Rodr´ıguez-Pose, A. (2021). Special economic zones and sourcing linkages with the local economy: Reality or pipedream? The European Journal of Development Research, pages 1–22.

Frick, S. A., Rodr´ıguez-Pose, A., and Wong, M. D. (2019). Toward Economically dynamic special economic zones in emerging countries. Economic Geography, 95(1):30–64.

Giannecchini, P. and Taylor, I. (2018). The eastern industrial zone in Ethiopia: Catalyst for development? Geoforum, 88:28–35.

Gibson, J., Olivia, S., Boe-Gibson, G., and Li, C. (2021). Which night lights data should we use in economics, and where? Journal of Development Economics, 149:102602.

Glaeser, E. L. and Gottlieb, J. D. (2009). The wealth of cities: Agglomeration economies and spatial equilibrium in the united states. Journal of economic literature, 47(4):983–1028.

Goodman-Bacon, A. (2021). Difference-in-differences with variation in treatment timing. Journal of Econometrics, 225(2):254–277.

G¨org, H., Mulyukova, A., et al. (2022). Place-based policies and agglomeration economies Firm-level evidence from special economic zones in india. Technical report, Kiel Institute for the World Economy (IfW Kiel).

Grant, M. (2020). Why special economic zones? Using trade policy to discriminate across importers. American Economic Review, 110(5):1540–71.

Hainmueller, J. (2012). Entropy balancing for causal effects: A multivariate reweighting method to produce balanced samples in observational studies. Political Analysis, 20(1):25–46.

Hainmueller, J. and Xu, Y. (2013). Ebalance: A stata package for entropy balancing. Journal of Statistical Software, 54(7).

Henderson, J. V., Storeygard, A., and Weil, D. N. (2012). Measuring economic growth from outer space. American Economic Review, 102(2):994–1028.

Jaffe, A. B., Trajtenberg, M., and Fogarty, M. S. (2000). Knowledge spillovers and patent citations: Evidence from a survey of inventors. American Economic Review, 90(2):215–218.

Keola, S., Andersson, M., and Hall, O. (2015). Monitoring economic development from space: Using nighttime light and land cover data to measure economic growth. World Development, 66:322–334.

Kline, P. and Moretti, E. (2014). Local economic development, agglomeration economies, and the big push: 100 years of evidence from the Tennessee Valley Authority. The Quarterly Journal of Economics, 129(1):275–331.

Koster, H. R. and Van Ommeren, J. (2019). Place-based policies and the housing market. Review of Economics and Statistics, 101(3):400–414.

Lu, Y., Wang, J., and Zhu, L. (2019). Place-based policies, creation, and agglomeration economies: Evidence from China’s economic zone program. American Economic Journal: Economic Policy, 11(3):325–60.

Marshall, A. (1920). Principles of economics. london. macmillan and co. limited.

Michalopoulos, S. and Papaioannou, E. (2014). National institutions and subnational development in Africa. The Quarterly Journal of economics, 129(1):151–213.

Neumark, D. and Kolko, J. (2010). Do enterprise zones create jobs? evidence from california’s enterprise zone program. Journal of Urban Economics, 68(1):1–19.

Newman, C. and Page, J. M. (2017). Industrial clusters: The case for special economic zones in africa. Technical report, WIDER Working Paper.

Oqubay, A., Lin, J. Y., et al. (2020). The Oxford Handbook of Industrial Hubs and Economic Development. Oxford University Press, USA.

Rosenthal, S. S. and Strange, W. C. (2020). How close is close? the spatial reach of agglomeration economies. Journal of Economic Perspectives, 34(3):27–49.

Rothenberg, A. D., Bazzi, S., Nataraj, S., and Chari, A. V. (2017). When regional policies fail: An evaluation of indonesia’s integrated economic development zones.

Runfola, D., Anderson, A., Baier, H., Crittenden, M., Dowker, E., Fuhrig, S., Goodman, S., Grimsley, G., Layko, R., Melville, G., et al. (2020). geoboundaries: A global database of political administrative boundaries. PLoS One, 15(4):e0231866.

Schmidheiny, K. and Siegloch, S. (2019). On event studies and distributed-lags in two-way fixed effects models: Identification, equivalence, and generalization. Equivalence, and Generalization (January 2019).

Tesfachew, T. (2021). Industrial Parks in Ethiopia: Newcomer Advantages. Enterprise and Economic Development in Africa, pages 259–275.

UNCTAD (2019). World investment report 2019: Special economic zones. In United Nations Conference on Trade and Development. United Nations Geneva, Switzerland.

Wang, J. (2013). The economic impact of special economic zones: Evidence from Chinese municipalities. Journal of Development Economics, 101:133–147.

Zhang, X., Tezera, D., Zou, C., Wang, Z., Zhao, J., Gebremenfas, E. A., and Dhavle, J. (2018). Industrial park development in ethiopia: Case study report. Inclusive and Sustainable Industrial Development Working Paper Series WP, 21:2018.