Which Factors Matter for the Performance of SEZs?
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was significant in any of these regressions was the Global Competitiveness Index rating, perhaps again indicating the importance of the national investment climate for SEZ-level outcomes.8 This finding indicates that country context is likely to be critical in the outcomes of any SEZ program, so it may be implementation rather than policy and design that is the most critical factor in determining the success of an SEZ program.
Correlations: Small-Sample Dataset Turning to the small-sample dataset to test the zone-level investment climate, we find strong evidence to support our hypothesis that the SEZ investment climate matters (see results in Table 4.3). In particular, two aspects of the investment climate appear critical: infrastructure and trade facilitation. Our variables measuring utilities infrastructure in SEZs show clearly that poor utilities quality is highly correlated with lower levels of zone exports and employment. While the relationship also holds for investment, it is not significant. This may reflect the sunk costs of investment and the fact that the poor infrastructure affects initial investment more and long-term sustainability less. These findings are in line with previous research on the relationship between investment climate and FDI and trade (c.f. Dollar et al. 2004) and Aggarwal’s (2005) study of SEZs in South Asia. Our findings on customs clearance show a strong relationship across all three dependent variables. Interestingly, for customs clearance, while the nominal variable (measuring actual clearance time) is significant, the relative variable (measuring the relative time advantage enjoyed in the SEZs over firms based outside the zones) is not significant, although its sign is in the direction expected. A strong relationship with zone outcomes is also evident in investors’ perceptions of the transport and logistics environment. Again, these findings corroborate the substantial body of empirical research on the relationship between transport and trade facilitation and export outcomes (c.f. Djankov et al. 2006; Freund and Rocha 2010; Portugal-Perez and Wilson 2010). In line with our findings from the large-sample database, we find no significant relationship between the setup and licensing environment in zones and overall zone outcomes, either with our measure of actual setup times (which is positively correlated but not significant) or with perceptions on the availability and quality of one-stop services. Finally, we find that a higher regulatory burden on firms is correlated with less positive outcomes, but this relationship is not significant.