Selecting the Best Location

At a Glance
  • SEZs tend to perform better if the location has some existing industry, if agglomeration offers access to trade infrastructure, or has a natural competitive advantage.
  • Without a natural spatial advantage (conditioned by production and transportation cost efficiencies) downstream production will be determined by the usual competitive drivers – e.g. cost of labor, capital, and utilities, etc.
  • Location should be chosen based on the quantity, quality, and price of critical factors of production: land, labor, utilities, business services, and international connectivity. The combination of these factors, along with considerations of potential for environmental impacts, contribute to the competitive advantage of an SEZ, and to its level of attractiveness to investors.
View footnotes

[1] “Prowling tiger. India pushes anew for special economic zones”, The Economist, July 9, 2007

[2]   Thomas Farole, Claude Baissac and Jean-Paul Gauthier. Special Economic Zones: A Guidance Framework for Policymaking draft (June, 2013)

 

Key Resources

See more resources

China's Special Economic Zones: An Analysis of Policy to Reduce Regional Disparities

This paper introduces the need to consider regional economic disparity as a location for an SEZ is chosen. The paper proposes a possible ...

SEZs in Select Countries: A Comparison with India

This resource provides an overview and examples of things to consider when choosing a location for an Special Economic Zone. Of particular ...

Special Economic Zones & Development: Geography and Linkages in the Indian EOU Scheme

This resource explores India's Export-Oriented Unit (EOU) scheme and its contributions to recent structural transformation. The EOUs are ...

Topic Briefing

Selecting the best location(s) is an iterative process with many variables to consider. If the government is contributing land to the SEZ then it must own it already, or a budget needs to be determined before a location is selected. Both avenues may narrow the search. Land acquisition for Indian SEZs has been problematic, in part due to who was compensated (and who was not). In 2007 this led to violent protests.[1]

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SEZs tend to perform better if the location has some existing industry and if agglomeration offers access to trade infrastructure (e.g. near a port) or has a natural competitive advantage (e.g. downstream processing of minerals or on-shore processing of off-shore oil). However, being close to a mine or oil site is only an advantage if (i) the unprocessed product carries a substantially higher transport cost than the processed product, (ii) transport cost forms a significant component of the overall cost structure, or (iii) the material can be accessed in a form that improves efficiency of the production process (e.g. a specialised salt or solution). Without this natural spatial advantage, downstream production will be determined by the usual competitive drivers – e.g. cost of labor, capital, and importantly utilities (electricity is often a large component of initial processing).

Ultimately, the location needs to be chosen based on the quantity, quality, and price of critical factors of production: land, labor, utilities, business services, and international connectivity.[2] Environmental impacts also need to be taken into account. The combination of these factors needs to contribute to the competitive advantage of the SEZ and add to its offering to investors. It is also necessary to consider the infrastructure available beyond the SEZ which is particularly important to ensure linkages of the SEZ with local economy and forms part of its attractiveness. The establishment of the Nigerian flagship EPZ in City of Calabar in the Cross Rivers State in the 1990s is an example of poor location choice. While the program emphasized manufacturing for export, Calabar was neither a major manufacturing nor an important logistics location in the country. The zone failed to develop and the port and the EPZ remains insignificant within Nigeria.