Industrial Zones and Domestic Firm Performance in Ethiopia, Tanzania and Vietnam

How do Special Economic Zones (SEZs) impact domestic firms' outcomes in low-income countries? This project aims to answer this question looking at the case of Ethiopia, Tanzania and Vietnam. SEZs are place-based policies designed to foster industrial development in both developed and developing countries. They tend to be geographic areas within a country's national boundaries where the rules of business are different from those that prevail in the rest of the nation. All three countries have used or plan to use SEZs as a cornerstone of their strategies for industrialization.

The researchers will be able to exploit the staggered timing of zone openings across provinces and over time. Since they will have at their disposal multiple periods before and after zone openings, they will be able to employ a difference-in-differences approach and test for pre-trends using an event study design. Domestic firms will be analyzed on the following outcomes: employment growth, total factor productivity growth, and wage growth. Moreover, knowledge spillovers through linkages and learning between domestic and foreign firms will be estimated.

Despite some relevant success stories, there is concern on the part of policymakers that SEZs operating in isolation have limited benefits for local economies. This project represents a realy opportunity to inform this debate using robust econometric techniques, newly available data and the recent experience of Vietnam.



Margaret McMillan

Tufts University

Brian McCaig

Wilfred Laurier University