What is a Special Economic Zone (SEZ)?
A country’s special economic zone (SEZ) is a region created to foster economic growth. Compared to other areas of the same nation, a Special Economic Zone (SEZ) is often subject to distinct and more advantageous economic laws, such as tax breaks and the ability to pay cheaper tariffs. Economic laws in Special Economic Zones (SEZs) often encourage and welcome foreign direct investment (FDI). Foreign direct investment (FDI) refers to any investments made by a company or individual from one country into businesses in another.
Understanding How Special Economic Zones (SEZs)
Within a nation, there are designated special economic zones with unique trade and commercial rules. They are often put in place to aid in the quick development and expansion of the economy in some geographical regions.
Growth in the economy may occur on a local, regional, or global scale. Special economic zones achieve growth by utilizing tax advantages to luring foreign capital via FDI and technical innovation.
SEZs have the potential to boost exports from both the implementing nation and those nations that provide them with intermediary goods. However, countries risk abusing the system and using taxes and levies to maintain protectionist barriers. SEZs’ regulatory restrictions may also lead to a significant degree of bureaucracy. This might have the effect of diverting funds from the system, lowering its effectiveness.
Specialized zones, industrial parks, and free-trade zones are some examples of SEZ types. Below, we go into more depth about these and other SEZs.
Although there are advantages for companies, people, or other organizations operating in SEZs, there is disagreement about the macroeconomic and social advantages for a nation that implements SEZ policies.
The Special Economic Zones (SEZs) of the of the past
SEZs were initially established in developed nations in the late 1950s. Their purpose was to entice multinational firms to invest abroad. The first one happened in Clare, Ireland, near Shannon Airport.
SEZs were also created in East Asian and Latin American nations in the 1970s. China has had the most prosperous SEZs so far.
By 2022, there were over 7,000 Special Economic Zones (SEZs), as the United Nations Conference on Trade and Development reported.
They are found all around the globe but are most prevalent in emerging and transitional economies, where they are used as an industrialization tool.
Special Economic Zone (SEZ) Types
Special economic zones come in various forms, as was already mentioned. Here are a few of the most popular categories.
Free-Trade Zones: These regions are specifically guarded and used for processing imports and exports of products. These zones, also known as foreign trade or commercial-free zones, have unique customs policies and duty-free treatment.
Export Processing Zones: These areas are often used for exports related to business and industry. Promoting economic development through foreign investment is the aim. Certain advantages are provided by export processing zones, including minimal to no restrictions and exemptions from taxes and import duties.
Industrial Park: As the name implies, industrial parks or regions are intended only for industrial use, not residential or commercial use. Benefits such as tax breaks are often granted to users of these protected zones.
Airport-based zones, logistics parks, and technological centers are a few of the most popular applications for specialized zones.
An illustration of a Special Economic Zone (SEZ)
SEZs have been established in many nations, but China has used them most to draw international investment. In 1979, China’s first four Special Economic Zones (SEZs) were established in the southeast coastal area: Xiamen in Fujian province and Shenzhen, Zhuhai, and Shantou in Guangdong province.
China included Hainan Island in its 1983 list of Special Economic Zones.
Fourteen open coastal cities were established by the government in 1984 due to the success of the first SEZs. These cities have many of the same advantages as Special Economic Zones (SEZs), including the authority to approve investment projects, provide incentives to foreign investors, and import machinery and technology tax-free.
SEZs are generally liberal economic settings that foster innovation and growth in China. To further improve these regions’ infrastructure, the Chinese government still permits certain places to provide tax incentives to foreign investors.
Both mainstream economists and the nation’s SEZs agree that the country’s SEZs contributed to the conventional state’s liberalization. China may have been able to carry out the same degree of national transformation as the SEZs.
What Qualities Can You Find in Special Economic Zones?
The goal of special economic zones is to foster and accelerate economic development. Making the most of foreign direct investment is one of their primary objectives. SEZs are zones expressly recognized, physically demarcated, and managed by a single authority. SEZ users and investors are eligible for several advantages, including advantageous taxes and regulations.
Which common types of special economic zones are there?
Free-trade zones, export processing zones, industrial parks, and specialized zones are a few of the most popular kinds of special economic zones. Numerous of these provide access to foreign direct investment and tax benefits, such as exemptions from customs and other levies.
China Established Special Economic Zones: Why Did It Do So?
There are special economic zones everywhere on the globe. But China is home to some of the most prosperous ones. When international businesses and investors became interested in the nation’s economic potential in the 1980s, the nation began establishing Special Economic Zones (SEZs) to accelerate economic development and leverage global resources. To keep up this expansion, the federal government created new SEZs in the 1990s and rejuvenated existing ones.
The Final Word
Around the globe, special economic zones are often employed to accelerate economic development. These are specifically created zones to encourage investment, mostly with foreign money. SEZs provide benefits, including advantageous tariffs and tax laws. Free-trade zones and industrial parks are two of the most popular SEZ kinds; you’ve undoubtedly seen them in many of the nation’s largest cities.
Conclusion
- A territory of a nation that is governed by distinct economic laws from other parts of the same nation is known as a special economic zone.
- Foreign direct investment is often encouraged by and drawn to special economic zones (SEZs) due to their favorable economic rules.
- Special economic zones typically accelerate economic development by using tax incentives to draw in foreign investment and spur technical innovation.
- Even so, several nations have established special economic zones. China has had the most tremendous success in luring international investment via SEZs.
