What are the Effects of Free Trade Zones on Employment and Wages?

The role of export processing zones (EPZs) in developing countries and more importantly, their impact on development outcomes, has been under scrutiny since the inception of the first zones some decades ago. Despite some scepticism regarding the positive impact of EPZs, these have proliferated and scattered across most developing countries in the world; becoming a common instrument in most countries’ trade and industrial policies.

Free trade zones are understand as special areas aimed at attracting investment and encouraging exports via different tax incentives and services support. These zones can be managed publicly or privately, and are also referred as special zones or export processing zones (EPZs). 

In order to unravel the multiple ways in which special zones are affecting employment and wages, it is required to analyse the different channels through which EPZs impact employment and wages.

There are a substantial amount of studies and evaluations in this area the question regarding the impact on employment and wages is not settled. Some studies have found that average wages are higher in EPZs than in non-EPZs areas but others argue that wages are in lower in EPZs than outside. This suggests that the experience regarding EPZs is mixed and country specific.

In addition, some of the existing evidence lacks an appropriate counterfactual and the geographical coverage is very diverse. Most papers have focused on more successful cases or larger countries, such as India, China, Mexico, the Dominican Republic or Mauritius; while very few focused on less apparently successful cases such as zones in Southern Africa.

Key contacts

Xavier Cirera

Research Fellow

Project details

start date
1 April 2011
end date
31 January 2012