Ownership of Special Economic Zones Matters for their Impact on Firm Productivity in India

Special Economic Zones (SEZ) are a widely used policy tool to attract foreign investment and foster industrial development. While the impact of SEZs on firm productivity has been extensively analyzed for developed countries so far, evidence from developing countries remains limited.

Such an analysis is provided by Prof. Holger Görg, Ph.D (KCG Managing Director) and Dr. Alina Mulyukova (KCG External Research Fellow), using India as an example (Görg and Mulyukova, 2024). India introduced the first Export Processing Zone (EPZ) – a type of SEZ – in Asia in 1965. Due to the ineffectiveness and lack of success of the first EPZs, a new SEZ Act was introduced in 2005 to allow for the establishment of privately led SEZs, shifting the focus away from only export promotion to more sustainable developmental goals. Görg and Mulyukova constructed a novel geocoded dataset to analyze the effect of SEZ establishment on firm productivity in the country.

Görg and Mulyukova summarize their key findings in a new blog article published on VoxDev, a platform initiated through the collaboration between the Centre for Economic Policy Research, the International Growth Centre, and the Private Enterprise Development in Low Income Countries program. Among other findings, they demonstrate that the ownership structure of SEZs plays a crucial role in determining whether these zones significantly enhance firm productivity. Firms in privately developed and operated SEZs are found to experience significant positive productivity growth after SEZ establishment, whereas firms in publicly developed and operated SEZs experience negative productivity growth. On the other hand, they provide evidence showing that the salary of directors in the publicly operated SEZs increases by 10-20% after SEZ establishment, whereas salary does not significantly increase for directors of private SEZs. Görg and Mulyukova therefore argue that personal gains and political connections may partially offset or undermine the efficiency gains intended through SEZ establishment.

The above-mentioned article “Görg, H. and Mulyukova, A. (2025), Special Economic Zones in India: Engines of economic growth or inefficiency?, VoxDev, July 22, 2025” and can be accessed here.

The underlying study “Görg, H. and A. Mulyukova (2024), ‘Place-based policies and firm performance: Evidence from Special Economic Zones in India’, European Economic Review, 165: 104752” is available here.

Contact:

Prof. Holger Görg, Ph.D. (holger.goerg@ifw-kiel.de; +49(0)431-8814-258)