EXPORT PROCESSING ZONES: The Economics of Enclave Manufacturing

Abstract

Export processing zones (EPZs) are economic enclaves within which manufacturing for export occurs under virtual free trade conditions. Many developing countries have established EPZs in hopes of reaping economic gains through employment, foreign exchange earnings, and technology transfer. This article studies the benefits and costs of EPZs in Indonesia, the Republic of Korea, Malaysia, and the Philippines and reviews the relationship between the welfare effects of EPZs and the host country's economic policies. When the domestic economy is distorted, the EPZ confers limited welfare gains. Nevertheless, EPZs are far from the "engines of development" that some countries had initially hoped they would become. Copyright 1989 by Oxford University Press.