The Rise of Place-Based Economic Policy Research
By J. M. Lane
Introduction
Toward the end of the nineteenth century, scholars began to show interest in the exchange of commodities and other measures of foreign trade. This resulted in the development of economic policy measures on an international scale (Chisholm, 1889; Smith, 1913). Since that time, the study of international trade and the resulting governmental policy structure has been outsourced to the field of economics (Fellman, 1986). Economic geographers have focused on issues such as urban and regional development and taken their focus off of international trade. According to Grant (1994), “today, many consider trade as simply a method of accounting imports and exports” (p. 298). This view on international trade fails to take into account the lasting impact that geography has on the distribution of goods and services abroad. This paper looks at recent trends in the study of international trade policy in the fields of economics and economic geography, with a specific focus on economic zones, in order to provide a frame of reference for differentiating between the two disciplines.
Specific policy measures can have a lasting impact on the way an economy works. Specifically, international trade policy can help to either improve or hinder an economy. Policy measures have garnered much needed attention in the past few years by scholars. However, many scholars disagree as to policies work best to help countries economically develop. Increased interest in trade policy has been spurred by growing worldwide participation in neoliberalist trading networks. Globalization and increased interconnectivity of cultures abroad have spurred scholars into researching these policies and the overall effect on economic productivity.
The rise of special economic zones has led many scholars to look at the benefits of ‘area specific’ trade policies. These new geographically dependent zones have led to growing debate over the validity of these zones as catalysts for economic growth (Nel and Rogerson, 2013). Growing concern over the value of neoliberal versus protectionist policies has led the adoption of what seems by some as compromise between these two extremes (Park, 2005). Scholars have looked at these opposing views in great detail with the ever-growing interconnectedness of today’s globalized world.
Economic Zones
Due to the highly successful economic developmental patterns of China in recent decades, through the use of Special Economic Zones (SEZs), geographers and economists have researched this phenomenon in great detail. Economists tend to focus on economic output of SEZs on local and national systems while geographers have focused more on the social issues associated with these designated zones.
Often seen as a trade-off between neoliberalism and protectionism, SEZs are specific zones within a larger urban context that are created by sovereign governments specifically for production and manufacturing. These zones typically have reduced regulations and taxes so as to attract large firms. In many areas the power to govern is left to the businesses that relocate to these zones. This particular policy measure has helped to create a manufacturing behemoth out of China (Wang, 2013).
Economic Research
The study of SEZs and their effects on development patterns became of interest to researchers in the early 1990s but focused mainly on regional and national developments. Economists dominated this field of research in the early days. According to Devereux and Chen (1995), the main issue with research on SEZs is the heterogeneous nature of policy behind these zones. Each zone acts in different ways in different countries, leading to many different models to follow. This presents a problem when attempting to develop sound policy initiatives. For that very reason, economists are continuing to focus on certain successful regions. In response to this lack of research, Schweinberger (2003) created a model for determining the best policy initiatives for developing countries to follow when designing SEZs. It was determined that in order for SEZs to be successful, they must attract foreign investors. By setting taxes and subsidies according to “market mechanisms” (p. 627), the government can effectively invite foreign investment while also raising enough revenue to increase public welfare.
What are the short-term and long-term economic effects of the creation of SEZs in developing countries? There has been a long running debate over the effectiveness of zone development. Early economists argued for evenly distributed growth policies. This is the idea that in order for growth to be sustainable, the entire economy should develop together (Rosenstein-Rodan, 1943; Nurkse, 1953; Scitovsky, 1954). Murphy, et al. (1989), developed an econometric model that determined if partial development occurred, the resulting growth would not be as robust because the lagging sectors would weigh down the eventual economic growth. This model showed much more significant growth patterns when all portions of the economy developed simultaneously. Econometric modelling is a stable within the field of economics.
Due to the success of newly industrialized countries such as China and India, many economists have focused on these developing countries for answers to this debate. China first began zoning new areas for development in 1979. Fujian and Guangdong would be the first two provinces from which China would experiment. These two provinces where given some relative economic freedom to work with foreign investors (Zhou, 1984). Throughout the next decade, foreign direct (FDI) investment increased dramatically. Economists have focused on foreign direct investment because it is easily quantifiable and fits neatly into econometric models. Litwack and Qian (1998) discussed and modeled seven possible outcomes to determine whether SEZs or a balanced approach is more profitable. The results where then applied to both China and Russia. Interestingly, they found that a balanced approach works if the country has limited ability for initial investment. SEZs can be more profitable if the government is able to invest substantially large sums of money in developing the zones at the onslaught.
Most economists focus on the direct and indirect impact that SEZs have on foreign direct investment and the subsequent value derived from this foreign investment (Abraham, et al., 2010; Chaudhuri and Yabuuchi, 2010; Das and Pant, 2006; Graham, 2004; Makabenta, 2002; Prime, et al., 2012; Wang, 2013). Do SEZs attract foreign direct investment and, more importantly, what is the impact of these investments on the welfare of the citizens? Wang (2013) created a model to determine the direct impact of SEZ on the adjacent municipalities. By comparing policy measures with FDI growth, results showed “that the policy package, including private property rights protection, tax breaks and land use policy, increases per capita municipal foreign direct investment by 58% in the form of foreign-invested and export-oriented industrial enterprises” (p. 24). This study did not, however, look at the impact of SEZs on labor welfare.
China in particular is an interesting case. With the introduction of SEZs in the early 1980s, China saw exponential growth in foreign direct investment. This was primarily due to the fact that the rest of China remained relatively closed off to foreign investors. What happened once China opened its doors nationwide in 1991? FDI increased dramatically once the entire country was open to investment. According to Graham (2004), SEZs might be considered a good first step in opening up a developing country to trade. After all, this increased foreign interest into China’s manufacturing and trading ability. The continuing flow of foreign investment is not due to current SEZ production, but in fact is due to many different policy measures, including the opening up of the economy at large.
The impact of foreign investment may have differing effects on the sectors involved in SEZs. While it is important to bring in foreign investment, what happens to the returns on those investments. Abraham, et al. (2010) found that while the overall effect of FDI earned from SEZs is positive, factories and producers that are completely foreign owned may not have as strong an impact on local production as do businesses that are jointly owned between local and international firms. Developing countries are looking to increase foreign investment, and for good reason. In general, foreign direct investment is linked to growing participation in international trade and research shows that this has a positive impact on Gross National Income (Chia, 2007; Hanson, et al. 2005). Foreign investment has led to a massive growth of income in China. Prime, et al. (2012) compared the growth in FDI in China to that of India and found a significant difference between the two. They determined that China was able to take advantage of timing and geographic location. Because China started early enough, provided the right amount of infrastructure, and used its geographic location to develop important trading partners, it was able to expand its FDI and build a massive export-led economy.
Economists have also focused on SEZ development in India in recent years (Chaudhuri and Yabuuchi, 2010; Prime, et al., 2012). While economic scholars tend to view China as a success stories, India is believed to have not been so successful. Once the Indian government began seizing land to create these new SEZs, farmers protested, claiming inadequate compensation. A majority of the Indian population depends on farming for income and sustenance and there has been a long-running debate over the effect of SEZ development on agricultural production. Can agricultural production increase while SEZ industrial production grows? This question has been tested to see if both can happen simultaneously. According to Chaudhuri and Yabuuchi (2010), “it is possible for both the agricultural sector and the SEZ to grow simultaneously if the FDI and the subsidy policies of the government are appropriately designed. A sizeable part of the government revenue must be spent on irrigation projects and other infrastructural development that raise the productivity of land and hence the effective land endowment of the economy” (p. 787).
Many developing countries are expanding the scope of SEZs within their borders, providing economists with valuable case studies. The government of Manila began creating SEZs in certain regional centers outside of metropolitan Manila in the late 1990s. Due to these developments, the Philippines saw a dramatic increase in foreign direct investment on these geographic zones. This was mainly driven by decreased regulation and the availability of cheap labor. In many circumstances, the foreign investment has been reinvested into the local communities through improved infrastructure. This spill-over effect has led to the massive development and growth of these urban conglomerations (Makabenta, 2002).
Another major area of interest to economists is the effect of SEZs on migration and labor rights. With the development of SEZs, there is an expected rise in employment percentages. The influx of jobs into these zones have led to a migratory response, pushing many poor farmers from the countryside to these industrial production zones. This is especially true in the Philippines. The development of SEZs in some zones and not others has led to mass migration from rural areas to regions with SEZs. This has also led to rising spatial inequalities between the two regions (Sanders and Brown, 2012). Economists have a much different tone on the international level. Park (2016) compared global policies of trade liberalization to the pluralistic state of global migration patterns. While the international trend is to open borders for traded goods, openness to migration is garnered on a case-by-case basis. SEZs have allowed governments to open borders to workers in ways that may have been politically impossible under previous circumstances.
Many African countries are developing SEZs on their own in hopes to attract foreign investors, increase exports, and build a viable manufacturing sector. Beginning in 2011, South Africa actively investigated the possibility of ten economic zones throughout the country. These zones present an important opportunity for a country like South Africa that is currently developing more rapidly than its neighbors (Zarenda, 2012). Due to mixed results from SEZs around the world, South Africa has been reluctant to start the zoning program. One of the most prominent complaints surrounding SEZs is the associated labor abuse. Cheap labor tends to be the catalyst that attracts the type of companies that neglect worker welfare (Palit, 2009).
Labor rights and advocacy groups have complained about the growing number of labor violations that occur in SEZs. In India alone SEZs often fail to meet minimum wage standards and laborers often work longer than standard legal hours. These are just some of the issues that scholars have researched in recent years. (Madani, 1999). Further investigation by economists into the legal framework of SEZs in India shows that labor law is not only avoided, but that SEZs are often exempted from following some of these laws. These zones often attract female labor in less than optimum conditions. According to Parwez (2015), “This is a significant role of zones because female employment is crucial for egalitarian and inclusive growth, employment is highly feminized in the zones and that these women are young and prone to be exploited” (p. 395). While there has been some regional interest in labor issues, scholars have largely ignored this on a global context.
Export Processing Zones (EPZs) are similar to that of SEZs but are generally more popular in developing countries. Both economists and geographers have been researching EPZs for quite some time and in greater detail than SEZs. The major difference between the two is that EPZs are created specifically for the manufacturing of products that will be exported. While SEZs are considered to be a similar concept, it is a more general term (Jayanthakumaran, 2003). The formal definition as outlined by the United Nations is “'small, closely definable areas within countries within which favorable investment and trade conditions are created to attract export-orientated industries, usually foreign-owned” (Thrift, 1988: p. 35). EPZs can be placed near a port and separated from government control or placed inside a region under the governance of private corporations, with very little government oversight (Rogerson, 1993). Wong and Chu (1984) argue that EPZs are generally designed and constructed in market oriented countries while SEZs are designated in former socialist states.
In the early years of research on EPZs, economists focused on the generalized benefits that a country received by implementing these zones. Although there had been several case studies, scholars had not developed a methodology of approach when researching EPZs (Warr, 1989). In an attempt to develop a theoretical framework, Jayanthakumaran (2003) used benefit-cost analysis to study China, Malaysia, Indonesia, South Korea, and the Philippines and calculate the successful or detrimental nature of EPZs. According to the results, EPZs in these countries have helped to increase employment, invite foreign investors, and boost national income.
Due to news on the early successes of EPZs, there has been substantial growth in the number of these zones worldwide (Aggarwal, 2005). One of the major issues when researching EPZs is the ambiguous nature of defining these districts. In some countries, the zones have no clearly defined borders, making it difficult to record accurate information (Singa Boyenge, 2007). The use of models as a means to test the effectiveness of EPZs is a common practice in the field of economics. Yücer and Siroën (2017) used “a gravity model of trade to evaluate the impact of EPZs on trade. This model measures the contributions of EPZs to exports taking into account their linkages with the host country’s tariff policy” (p. 1014). Results showed that EPZs only offset the negative impacts of a country’s protectionist policies by adding to the total trade value. Interestingly, the model found that overall, EPZs had a larger effect on imports. Countries with EPZs tend to import more goods from their trading partners than do non-EPZ countries.
What makes EPZs so attractive to foreign manufacturers are the incentives provided to potential investors. Under most circumstances these zones have already been provided with modern infrastructure, taxes are either very low or non-existent, labor is mobile and relatively cheap, and profits are mobile and allowed to be kept private (Warr, 1989).
Increased adoption of neoliberal trade policies has led to the declining influence of EPZs in Africa and some countries have continued efforts to increase the influence of the production zones within their borders. Mauritius is one of the few examples that has seen substantial employment growth, while most have seen negligible results. Some scholars warn against the use of EPZs in Africa, arguing that free trade agreements offer more long-term employment opportunities (Rolfe, et al., 2004). The implementation of an EPZ in Mauritius has been seen as a success by some, yet other scholars consider the costs to outweigh the benefits. According to Sawkut, et al. (2009), the EPZ in Mauritius falls short of the intended benefits “because of the incentives that were given to the producers working in the EPZ sector. The cost of these incentives was higher than the overall returns obtained from the sector” (p. 391).
Scholars have used similar research guidelines to study other regional EPZ actors. According to Jayanthakumaran and Weiss (1997), on an aggregate level, the benefits associated with an increase in employment and the rise in profits for domestic investors outweigh the costs associated with the implementation of the EPZs in Sri Lanka. Other scholars determined that preliminary successes in Madagascar were due to the attractiveness of low labor costs. This allowed firms to produce goods at a relatively high rate of production while incurring minimal revenue loss. Foreign investment through trade deals with the United States and the European Union also helped make these EPZs successful (Cling, et al., 2005).
One of the biggest issues associated with economists and the study of economic zones is the reliance on statistical analyses to provide conclusions. These studies provide valuable quantitative evidence on the impact of economic zones and developmental patterns at an aggregate level. Where these studies fail to provide valuable information is on the disaggregate level and specifically the differences between geographic locations. These spatial patterns and community level impacts could provide much needed information in order to understand the value of economic zones to society as a whole.
Geographic Research
Geographers have argued that more emphasis needs to be placed on the spatiality of developmental patterns. How do spatially separated economic policy measures impact society on a locational level? To answer this question a researcher should take into account the relationship between governments, economy, and geographic location. This is the direction that economic geographers have turned toward in order to understand the relationship between economic zones, political structures, and civilian populations. As an example, new policy of spatial liberalization throughout the East Asian industrial giants has led to uneven geographic development (Park and Lepawsky, 2012). Increased attention by geographers has been placed on the uneven development of space due to the creation of these enclaves. Uneven developmental patterns have been due largely to modern neocolonial political patterns across space and are best exemplified by the development of economic zones (Sidaway, 2007).
Geographers have focused on SEZs in order to compare spatial differences and explore geographic patterns across space. Recently, China began work on a new SEZ in Kashgar, near the border of Kyrgyzstan and Tajikistan. This new zone is part and parcel of a larger design that China is currently undertaking. China plans to connect the western most part with other countries in Central Asia, in an attempt to rebuild the silk road. In one particular study, geographers used the Shenzhen SEZ as a control to see how Kashgar might fair. The study found that Shenzhen is a special case. The success of Shenzhen is far greater than other SEZs in China and should be considered the exception. Kashgar will be fighting an uphill battle due to its inland location and lack of access to deep water ports. Success here is dependent on China’s neighboring Central Asian countries (Chou and Ding, 2015).
In the wake of international attention on the success of Chinese SEZs, Panama decided to create two distinct SEZs as a means to invite foreign investors. The Panamanian government began works on these SEZs determining that this would be a good opportunity to take advantage of agglomeration economy based around the canal-zone. Economic geographers decided to take the opportunity to compare these two zones. Both the Colon Free Zone and the Panama Pacifico were strategically placed at the entrances on the Pacific and Atlantic Ocean sides. Both SEZs are given extreme independence with limited oversight by the Panamanian government. These zones have helped to increase FDI by a considerable amount in recent years but have failed in large part to achieve the stated goals. Spatial inequality is still high and healthcare remains subpar (Sigler, 2014).
What role do SEZs play in state boundaries and sovereignty? Economic geographers began asking questions about zone sovereignty and the subsequent consequences of privatization. Some geographers called for the removal of strict borders in an attempt to extend trade liberalization policies (Agnew, 1994; Holden, 2017; Ong, 2000; Passi, 2003). These policy measures coupled with an increasingly globalized world have led to the extension of neoliberal trade policies throughout the world. SEZs allow for a graduated system of sovereignty by giving control of certain geographic regions within a country to the private sector. Due to political opposition to complete liberalization of trade policies in countries like South Korea, state-led developmental strategies and neoliberal trade policies through the creation of SEZs as a spatial compromise helped to quell some of the political opposition (Park, 2005). According to Holden (2017), due to the graduated sovereignty and general loosening of regulations in SEZs, there has been a spike in illicit tobacco trade within these zones. This has only increased in recent years and the number of economic zones has increased and deregulation continues to rise.
Geographers are contending that this pattern of sovereignty transfer has multiplied in recent decades due to the extensive grasp of corporate power in developing countries. Bach (2011) argued that this change in sovereignty was perpetuated by stagflation in the 1970s across the globe. This has further increased with the adoption of liberalization policies in most developing countries today. According to O’Donnell (2001), these zones become so compact and because of capital flight, population migrates to these areas. What is intended to be a manufacturing zone becomes an independent city within a larger urban structure.
What are the political ramifications of building SEZs in developing countries? There has been growing debate over the positive and negative aspects of the growing number of SEZs and the resulting impact on local populations. This has been an area of interest for geographers but many disagree over the short-term and long-term effects (Ananthanarayanan, 2008; Anwar and Carmody, 2016; Bedi, 2013; Bräutigam and Xiaoyang, 2011; Bräutigam and Xiaoyang, 2012; Levien, 2013; Nel and Rogerson, 2013; Park, 2005; Sampat, 2010). The world is now well into the dominating neo-liberal order and sentiments over the effectiveness of these policies are changing.
Some geographers have focused on labor welfare and the extent that this is impacted by the development of SEZs. Yeung, et al. (2009), argued to the creation of SEZs in China was an attempt to open up trade with the rest of the world through the development of free trade regions within greater China. Much of this growth was demographic in nature. Most of the SEZs are located near the larger river systems and relatively close to the coastline. Geographers have argued about the importance that location plays on the success of these zones. It has also been argued that factories in those locations hire cheap and unskilled workers. For consistent growth, factories need a constantly growing labor pool, which requires workers to migrate from inland to these coastal cities. Many of these factories have since closed and the migrant workers have returned home to the countryside. This has led to the development of some reforms that may restructure the way that China deals with developmental issues.
Groups around the world have protested about the seizure of land and property from poor farmers and subsequent acquisitions by corporate transnational elites. This along with claims of political corruption and graft have fueled concerns over the future of the Indian countryside. One area where this battle has come to head is in the state of Goa. At least two groups were formed in opposition to SEZs and have fought to stop any future developments over the matter. One of the major concerns presented by these groups was the relatively distant nature of the central government of New Delhi from the state of Goa. Many believe that this distance keeps the politicians from hearing the concerns of the local citizens (Bedi, 2013).
Are these concerns over SEZs in India warranted? Many local townships and regional groups are protesting these developments, yet SEZs are still being implemented. These policy measures are seeing a growing sentiment with political leaders due to associated wealth and economic growth. According to Anwar and Carmody (2016), “policies like SEZs help redistribute the wealth and asset ownership among the political economic elites of the country, thereby enhancing their class power and further enabling the continued spread of neoliberal globalization in the countryside” (p. 133). Many of the beneficiaries of these zones are transnational elites.
Geographers have argued that the use of eminent domain by India to seize property deemed necessary for development is a direct result of colonial policy passed down from previous generations. In fact, in the early days of SEZ development, the Indian government remained relatively quiet over the issue of citizen displacement. Current data estimates that as many as fifty million people have been forced from their homes (Sampat, 2010). The growing resistance to SEZs in India forced the government to suspend all land seizures in 2007 until proper mechanisms were put into effect that could compensate the displaced agrarian poor. An amalgamation of political groups has worked together across several different political ideologies, making this a major transformation in grassroots movements in India (Ananthanarayanan, 2008). This movement is growing in recent years due to the SEZ policies toward Nandigram and Singur in West Bengal. Growing resentment toward government policy has only led to further division between the rural poor and the land-owning elite (Ramachandraiah and Srinivasan, 2011).
Some economic geographers believe the problems associated with SEZs are part of a more nocuous purpose. According to Levien (2013), governments argue in favor of displacement policies due to engrained societal greed. This is usually hidden under the guise of development or the common good. Land seizures in India were not done solely for the development of SEZs; the government was also seizing vast swaths of agricultural land from poor farmers and selling it to wealthy corporations for the production of multimillion dollar housing complexes and hotels.
Geographers are also focusing on the changing leadership within the scope of neocolonial power and are especially interested in China’s growing economic and political power. This is in part due to China’s growing investment in overseas SEZs. China has had a hands-off approach to lesser developed countries (LDCs) with resource wealth than that of the United States, leading many countries to adjust their policies toward the east. While many of these zones were proposed for China’s neighbors, a large number of them where directed toward countries that are under US zone of influence. In most cases, these zones are designed to extract natural resources that are to be shipped to China for manufacturing production (Bräutigam and Xiaoyang, 2012).
China has used soft power to influence economic development in countries around the globe, but one of the largest recipients of Chinese economic sway is Africa. China imports Africa’s raw materials and African trading partners import Chinese manufactured goods. According to Marysse and Geenen (2009), this relationship mirrors the days of colonial trade, with China receiving the major benefits. Other scholars believe that the benefits outweigh the negatives. With rising demand in newly industrializing countries (NIC) for African products, it has been argued that this has brought about radical development and change on the African continent (Bräutigam and Xiaoyang, 2011).
The growing imperialistic nature of China’s dominance in African policy has led to increasing concerns by geographers for better international oversight in the development of SEZs. Nel and Rogerson (2013) argued that “as SEZs are implemented in South Africa, international best-practice clearly needs to guide policy and strategy choice and their limitations taken into consideration in planning. Critically, such zones must not be treated as isolated enclaves but as an integral part of the evolving national economy and an element of a broader policy of economic reform and change” (p. 215).
Geographers have been studying the developments of EPZs as well as SEZs. They have attempted to discover the reasons why EPZs have become the dominate form of export oriented production. EPZs have become popular around the world but East Asia has adopted these zones wholesale. Latin America comes in a close second. Throughout the 1970s, East Asian countries began to change focus from import-substitution economy to an export-led economy. Due to a few examples of successfully implemented EPZs in places like South Korea and Taiwan, other East Asian countries began following suit. EPZs attract foreign investors and allow the country to continue the use of protectionist policies elsewhere (Amirahmadi and Wu, 1995).
Geographers have also focused on the labor pool as a source of production power. How have EPZs affected employment in developing countries? According to Reitsma and Kleinpenning (1985), by 1978 the adoption of EPZs in Mexico helped to build 400 new factories that employed as many as 75,000 people.
Most of the economic studies on EPZs have taken place on an aggregate level, whereas very few have looked at the localized effects of EPZs. Geographers are beginning to look at scale as a factor for EPZ research. Picarelli (2016) looked at the effects of EPZ implementation on local population groups in Nicaragua to see what socioeconomic group benefits the most. Results showed that while low-skilled workers saw marginal benefits, the wealthier high-skilled workers received the brunt of benefits from the EPZs.
It is important to note that scholarly research is ongoing and it will be interesting to see what research is released in the future. The growing adoption of export oriented policies by developing countries around the world has led to growing interest on the effectiveness of these policies. Economists have mostly adopted strict quantitative approaches focusing on aggregated data at the state level, while geographers tend to concentrate on social welfare and spatial inequality. More research is needed from both economists and geographers on the impact of trade policy on the middle class. While most of the current research relies on aggregated date or focuses on case studies, it will be interesting to see the impact that SEZs and EPZs have on domestic workers and disposable income levels.
Methodological Approaches
What methodological approaches do scholars use when researching the effectiveness of certain trade policies? The vast majority of economists surveyed in this paper have approached the study of international trade policy using varying types of quantitative methods, however geographers have approached this subject from the perspective of a political economists, reviewing previous materials and comparing current trends to that of historical colonial trends. There are also a few examples of research using descriptive statistics to show changes in economic development patterns.
A large number of economists have either independently developed their own models or borrowed previously created models to test certain case studies. Heitger (1987) created a growth model of adaptation based on common assumptions used in classical economic theory. Mehrara, et al. (2010) used a four-stage model that determines the causality of economic growth. Cavallo and Frankel (2008) used a gravity model built on regression analyses to conclude that countries who trade less can have more currency crashes than those who trade more. Tinbergen (1962) created an economic gravity model that estimates trade flows. Other scholars produced models that dealt directly with the impact of SEZs and EPZs on variables such as foreign direct investment, domestic welfare, and economic growth (Devereux and Chen, 1995; Litwack and Qian, 1998; Schweinberger, 2003; Wang, 2013).
Regression analysis is another prominent method used by economists to predict economic behavior, test causality, and measure the types of relationships that exists between two or more factors. It can also be used as the basis for modelling (Cavallo and Frankel, 2010). Some scholars focus on several factors by running multivariate regression. This has been used to compare several economic growth factors to protectionist policy initiatives (Lawrence and Weinstein, 1999). Giovanni and Levchenko (2009) used correlation and regression to compare trade openness to market volatility and determined a positive correlation between the two overarching variables. Yanikkaya (2003) determined that protectionist policies correlate with economic growth in developing countries. Abraham, et al. (2010) used regression to analyze the foreign direct investment spillover associated with manufacturing growth in China.
While both modelling and regression are popular methods, a number of economists surveyed in this paper used the Granger Causality test. This method has been used to test the validity of the export-led growth hypothesis on certain countries (Awokuse, 2011; Marin, 1992). Benefit-cost analysis is another method used to measure the effectiveness of certain policy measures at the national level. Jayanthakumaran (2003) used a benefit-cost analysis of EPZs on five newly industrialized countries and determined that in one case, the cost outweighed benefit. However, results showed that in the majority of cases that EPZs spurred development. Sawkut, et al. (2009) used a benefit-cost analysis on EPZs in Mauritius using microlevel data. In this particular study, benefit-cost analysis was effective at using disaggregated data to study the viability of export-led policy on a small-scale.
While the majority of economists published research using quantitative methods, a large number of these researchers used a more descripted form of writing. These authors approached trade policy from the perspective of historical development patterns and chose to produce a critical review on the current affairs within the field. The majority of these commentaries used previous research to describe the conflict between neoliberalism and protectionism (Deardorff, 2002; Freeman, 2004; Wade, 2003).
Geographers were more specific, focusing on detailed sections within the international trade debate. Park (2005) provided a critical overview of current political debates on the validity of SEZs in the world economy. Sidaway (2007) described the growing debate among geographers over new developmental patterns and the creation of wealthy enclaves due to certain policy measures. Other geographers approached the study of economic zones and graduated sovereignty from the perspective of critical historicism. This provided a frame of reference on the current realities of economic zones and the patterns that they have followed (Bach, 2011; Bedi, 2013; Bräutigam and Xiaoyang, 2012; Marysse and Geenen, 2009)
A few geographers and economists chose a middle ground between ‘hard’ statistical approach and ‘soft’ qualitative approach. These authors used statistics already compiled by outside agencies to support conclusions approached in their research. Kravis (1970) used explanatory statistics such as export earnings, trade volume, and gross national income to provide a robust analysis of the contemporary state of least developed countries and their involvement in world trade. Shafaeddin (1995) compared statistics from several other studies and provided conclusions on export-led growth in developing countries. Other authors looked specifically at the relationship between SEZs and foreign direct investment growth as mechanisms of economic development (Graham, 2004; Yeung, et al., 2009).
Conclusion
There is an internal debate among scholars over the best ways to approach international trade policy. The classical neoliberal policy of free and open trade is receiving growing opposition from scholars and has often been viewed as a misnomer. In fact, in its current form, free-trade is not free (Rodrik, 1995). Scholars have arrived at many different conclusions over this issue and data often shows conflicting results.
For some researchers, if the institution of neoliberalism on a national scale is not attractive, the alternative is the creation of special economic zones (SEZs) and export processing zones (EPZs). These zones have been seen to some as catalysts for economic development and have been adopted wholesale by a variety of developing countries. Unfortunately for the proponents of these policies, results from case-studies around the world show conflicting results as well. Economists tend to approach the study of these zones from a broad statistical methodology, of which many geographers argue that this method fails to summarize the human condition across these zones.
Geographers have focused on the spatial nature of development and the political realities when creating zones with variable legal structures. This methodology tends to be more descriptive in nature but falls short of providing valuable solutions. Looking at the data, neoliberal policies such as the development of economic zones helps to promote foreign investment and increase gross domestic product. Statistically, economists have made the case for a certain degree of zone development. In order for geographer’s warnings against spatial zoning to be taken seriously, a methodological approach should be developed that can prove that these zones adversely affect society. Future studies need to expand the scope of research to a global scale and provide alternative solutions to the issues discussed. Its clear that economic zones work in some places better than others so the benefits for development versus the problems associated with labor, migration, and crime need to be accounted for internationally.
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