Academic journal article Indian Journal of Economics and Business

Free Tradezones in Closed Developing Economies: An Examination of EPZ Success in Mauritius

Academic journal article Indian Journal of Economics and Business

Free Tradezones in Closed Developing Economies: An Examination of EPZ Success in Mauritius

Article excerpt

Abstract

EPZs are separate free trade zones within a country that are typically free from the domestic government's regulatory rules so as to generate foreign exchange, create employment, boost exports, transfer skills, etc. The new growth theory and lifecycle approach offer the best evidence for EPZ success in Mauritius, as it has followed a particular cycle indicating gradual liberalization of the economy and the diversification of exports. However, the EPZ is not the sole engine of growth. Good governance, political stability, and well-developed infrastructure, among other factors, have all contributed to the success of the EPZ and economy as a whole.

Keywords: Export Processing Zones, Mauritius, Free Trade

Mauritius was made first and then heaven; and heaven was copied after Mauritius.

(Mark Twain quotation; Re-quoted in Time Magazine, 1970)

INTRODUCTION

While Mark Twain's quote of an islander in 1896 referred to the Mauritian people's perception of the tropical paradise surrounding them, it should be other developing countries that copy the combination of orthodox and heterodox strategies that led a country void of natural resources to economic success. This success came at the hands of a new, innovative policy to incorporate the country into an Export Processing Zone (EPZ).In light of the failures of many developing countries using import substitution strategies as a means to reduce foreign dependency and accelerate industrialization, arose more export-oriented policies that focused on the development of free trade zones within a typically closed economy.

These free trade zones entail a variety of different terms, namely Economic Processing Zones (EPZ), Special Economic Zones (SEZ), Foreign Trade Zones (FTZ), Export Processing Factories (EPF), free ports, economic cooperation zones and industrial parks. However, all of these concepts refer to the same basic idea. The only differences exist in a particular country's development objectives. For the rest of this paper, EPZs will be the primary focus as they are the most commonly used term and encompass much of the literature.

Essentially, EPZs are separate geographic regions within a country's national boundary that are generally free from the regulatory governmental controls associated with the rest of the territory so as to increase foreign direct investment (FDI). The primary objectives of these EPZs are to create employment, generate foreign exchange, boost the export sector, particularly through non-traditional exports, raise local industry standards through technology transfer, and attract investment into specific activities that are strategically import to the economy [Sawkut et al., 2009].

By relaxing the laws regarding international trade and customs, taxation, quotas, and other investment conditions, governments are able to incentivize foreign investors to initiate manufacturing activities, typically by processing and exporting previously imported intermediate goods, without subjecting the rest of the country to this deregulation, at least from the onset.

This paper will be divided into two primary sections. Section one will discuss the theoretical framework behind the literature on EPZs by examining four main schools of thought: neo-classical theory, benefit-cost analysis, new growth theory, and finally the life-cycle approach, including Omar and Stoever's [2008] modified life-cycle approach, which takes into account the importance of human capital investment and technological development. Section two will then examine the establishment of Mauritius' EPZ, its creation of rapid economic growth, and finally its gradual decline. It will then be determined that the new growth and life-cycle theories appear to depict the path of the EPZ better than neo-classical theory or benefit-cost analysis because the gradual decline of EPZ growth indicates that the EPZ has integrated into the domestic economy, which is a measure of economic success. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.