What is a Special Economic Zone?

Mary McMahon
Mary McMahon

A special economic zone (SEZ) is an area within a nation which has relaxed financial and economic laws. The laws are altered with the goal of attracting foreign investors who might be interested in doing business in an area where they receive favorable treatment. One example of a special economic zone is a free trade zone, although they are are many other types of special economic zones. Some of the most famous are found in China, where the government has been creating such areas since the 1980s.

Sometimes a local government spearheads the development of a special economic zone.
Sometimes a local government spearheads the development of a special economic zone.

Sometimes the national government spearheads the development of a special economic zone, while in other cases, it may be the local government, with the goal of revitalizing the local economy. Such zones are often developed in cooperation with major foreign investors such as corporations which would like to put up factories in the zone. Within the zone, taxes are reduced and may be cut entirely, businesses pay lower tariffs, and other financial regulations are relaxed. A special economic zone may also have reduced environmental regulations.

The idea behind a special economic zone is that it will stimulate rapid economic growth. By attracting foreign investors, nations can tap into wealth from other countries to improve their economies and living conditions. Such zones can develop very quickly, attracting workers from all over the area, and may also provide opportunities for advancement for people working in management. Local businesspeople can also take advantage of the conditions in special economic zones.

Numerous nations have experienced economic booms as a result of special economic zones. People who opt to work in the zones may be able to earn salaries higher than those in other areas of the country, and can send money home to family to improve living conditions outside the zone. The effort to attract foreign investment can be highly effective, providing host nations with more economic and political power as a result of their increased international standing.

The formation of such zones has been criticized from a number of different perspectives. There is some concern that making SEZs can potentially displace native populations, who may not be fairly compensated for the loss of the land, and thus that special economic zones could create refugees. Relaxation of environmental and occupational health and safety laws has also been criticized because it can endanger the environment and the human population. When companies concentrate polluting factories and industries within zones with relaxed environmental standards, it is difficult for nations to set and enforce laws which are designed to protect the environment.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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Discussion Comments


Shenzhen is usually the example I hear about when special economic zones are discussed. It's a really successful SEZ in China. It used to be a simple village before it was transformed into a SEZ. Now it is said to be an important industrial center in China. Many Chinese travel there for work.

There are some other examples of successful SEZs from around the world. But it's still not very popular. Industrial parks are more common. I heard that there are more than one thousand of them in China. They are pretty similar to SEZ but smaller. It is in the control of local provincial governments not the federal government. But I think when a SEZ is created, they create industrial parks around it to support the SEZ.


In special economic zones, the benefit to locals is much greater than we can imagine. When a foreign company sets up facilities in a special economic zone, there are economic incentives for it to buy everything locally- both the raw goods and workers. It also has incentive to sell its products locally thanks to exemptions from customs duties.

Really, the locals are gaining a lot from this deal. The local government gains from selling commodities, people gain by finding work and it can also improve their quality of life. And the foreign company definitely gains by increasing its profits. It's a total win-win situation.


I think that the trend for liberalized free trade policies promote special economic zones, especially in developing countries.

Whenever I attended an event or conference about a developing nation while I was in college, I kept hearing the same goal and suggestion: "attract foreign investment." But that's not so easy if that nation doesn't have a valuable and cheap commodity available or if there isn't a healthy and safe environment for investment.

That's probably why China and India, two developing nations, have the most special economic zones. But special economic zones can have negative consequences on the environment and native populations.

So is it fair that we, the developed nations and international organizations push developing nations to do these things, even if it is unintentional?

Is this really why special economic zones were thought of in the first place?

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