The Role of Tech and Human Capital in the EPZ life-cycle Omar and Stoever

Introduction  Dynamic engines of growth vs. net drains on govt resources  Two dimensions of dynamic development of EPZ  Rising technological intensity of local inputs  increasing integration of the zones into the host economies  See the dynamics through the product life-cycle theory

Literature review  Neg vs Pos views  Three diverse views (Madani 1999)  (1) Neo-classical school  Distortion effects-What kind? -> Critics based on unemployment  Cost-benefit analysis -> cost not justified -> less tangible or dynamic benefits are ignored

 (2)New growth Theory  Focus on knowledge creation  R&D, education system, and entrepreneurship  Spillover effects of EPZs (FDI) into host economies, and backward linkage  Knowledge embedded in the capital, machines, and labors  What kinds of critics?

 (3)life-cycle approach  Focus on dynamic nature of EPZs  EPZs might evolve over time

Basile and Germidis (1984)’s life-cycle of EPZ  provision of basic infrastructure and facilities, prompting an inflow of FDI  exports expand strongly, even while the rate of FDI inflow begins to slow  slower growth in exports and the replacement of small marginal businesses  disinvestment by foreign enterprises

Four categories of EPZs  1)Enclaves:  extractive industries & simple assembly business  2)Testing grounds for liberalization  EPZs in China and Mauritius  Signal for more or less liberalization  3)Functions as a part of overall liberalization process  EPZ’s role is transitory  Masan EPZ in Korea

 4)Failed version of the third  EPZs in Africa and some South Asian countries  Scheffer et al. (2003) “vested interests and domestic monopoly”  Tekere (2000) “generous incentives but modest benefits”  What have made successes and failures?

Towards an integrative life-cycle EPZ theory  Dynamism or stasis?  Two dimensions (Govt’s role?)  Upgrading local inputs supplied to producers in the EPZ in terms of technological sophistication and value-added; and  Increasing integration of EPZs into the local economy

Local training and tech upgrading  At initial stage, EPZs Seeking low cost labor  Assembly operation with some local sourcing of components (auto industry. Metals fabrication)  Maquiladoras in northern Mexico  Mactan Zone in the Philiphines  Costa Rica’s FTZs  Policy questions?  How can govt make local sourcing more desirable, cost- effective?  How to narrow the technology (skilled personnel) between MNCs and local suppliers  How to strengthen “Absorptive capacity of local firms”

 Singaore and Malaysia’s policies?  Moran’s stages  OEM -> ODM -> OBM  Asia’s NIEs have progressed along this path  China’s similar path    Start in early 1990s  Private investment in human capital is the key

Integration of EPZs into the domestic economy  Policy questions? How to expand EPZs?  When and how domestic firms are allowed to benefit from the same advantages of foreign investors?  When and how EPZ products are allowed to be sold in domestic markets?  China’s SEZ expansion, Hong Kong and Singapore’s transformation into nation-wide SEZs  Other countries still isolated

EPZ as catalysts for structural transformation

EPZs are important in lower stage of econ development, but..

Postulating three scenarios for EPZ progressions

 Scenario (a)  The sophistication and technology of the products does not increase  Dominican Rep’s EPZs  Scenario (b)  No upgrading of local suppliers and no integration of EPZs into the host economy  Tunisia and Guatemala cases

 Scenario (c)  Unsuccessful cases: Kenya, Egypt, Ghana  Successful cases: Korea etc.  barriers between EPZ and non-EPZ dismantled

 Success Factors again  Tech grading and integration into host economy  How to achieve this goal?  Sectoral policy-education & industrial Policy  General policy-economic reform and liberalization policy  “window and radiator” function of SEZs