Introduction
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exemptions on minimum wage and labor rights (rather than addressing productivity or labor market rigidities). For the Dominican Republic, and many other lower middle-income countries whose zones programs have focused on basic assembly manufacturing and trade, the main growth opportunities are now in services sectors, especially ICT, business services, and in more knowledge and research and development (R&D)–intensive sectors. As Justine White illustrates in chapter 8, this means fostering innovation. And this highlights the need for zones to avoid becoming enclaves and instead facilitate an ongoing exchange with the local economy. Chapter 8 reinforces the importance of skills development and training, bringing in examples not only of the Shenzhen case, but also of the Republic of Korea, Malaysia, and others. Finally, it establishes a clear set of guidelines for how to ensure that an SEZ plays an ongoing role in fostering innovation, and brings in rich examples of countries whose SEZ programs not only catalyzed a process but also provided the necessary spark to fuel continuous innovation and upgrading. But facilitating structural transformation through SEZs is not a mechanical process that simply requires the right policies. In fact, the principal factors explaining why many countries have distorted economic structures and lack sufficient dynamism are political in nature. In many cases, political and economic elites benefit from the status quo and thus have little interest in structural change. It is in this context that SEZs can perhaps be most effective, in catalyzing processes of economic reform. Indeed, this is the classic case of China’s SEZs, which were used to test liberal economic reforms and to introduce them to the wider economy in a gradual way. Thus, although the idea of integration between SEZs and the domestic economy is ultimately the key to structural transformation, where economic reforms are politically sensitive to implement, it is precisely the enclave nature of zones that can be their key to success. In chapter 9, Richard Auty explores this issue from a theoretical perspective, looking at the political economy of SEZs and their potential to play a catalytic role in facilitating economic reform in environments in which the barriers to such reform within the domestic economy are substantial. Auty introduces the concept of early reform zones (ERZs) as a dual-track strategy to overcome barriers to economic reform in rentdistorted economies. Although his model is relevant in many situations, perhaps most notably in natural resources driven economies, in chapter 9, he discusses specifically the context of Sub-Saharan Africa, where many