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Special Economic Zones in Africa
impact of SEZs and has sought to incorporate certain dynamic impacts, notably in terms of trade liberalization and growth. Cost-benefit analysis work is empirical insofar as its aim is to evaluate the welfare impact of SEZs on a case basis. Owing to the data constraints that characterize SEZ analysis, few cost-benefit analyses have been conducted. Spinanger (1984) undertook an evaluation of both static and dynamic impacts, and applied it to zones in Malaysia, the Philippines, Singapore, and Taiwan-China. Using market prices, he concluded that in all cases the EPZs had been welfare-positive, but at varying levels. Warr (1989) conducted a series of analyses in Asia and developed a formal cost-benefit framework based on the “enclave model.” The zone is an enclave because it is separated from the domestic economic by investment and trade barriers while being integrated in the international economy through liberal investment and trade conditions. The model selects economic and financial flows that are relevant to the domestic economy and excludes those that are not. Warr posits that the only relevant flows are those between the zone and the domestic economy, while those between the zone and the rest of the world are not relevant. Thus, investments made in the zone by foreign companies are not relevant, nor are profits paid overseas. The importation of equipment, raw materials, and intermediate goods, as well as the technology used to manufacture the finished goods, are excluded. Products manufactured and exported are relevant only up to the proportion of value added that is retained locally: primarily domestic labor, electricity and water, intermediate goods, taxes, and local services.10 These flows must account for incentives and subsidies, and the social opportunity costs of key domestic entrants.11 Warr’s analysis showed that most of the benefits generated by zones (Indonesia, Malaysia, and the Philippines) came from foreign exchange earnings and employment. Local purchases of raw materials and tax revenues were marginal. Development and management costs for EPZs and administrative costs of the regime were heavily weighted. This was particularly the case in the Philippines, where the Bataan zone returned a net welfare loss. Warr concluded that zones returned limited benefits and were not engines of development and that their main value was in their capacity to absorb surplus labor in countries in early stages of development. He discounted the dynamic impact of EPZs (1989). Jayanthakumaran’s (2003) cost-benefit analysis using an updated enclave model shows that zones (China, Indonesia, Malaysia, South Korea, and Sri Lanka) had economic internal rates of returns between