Do Special Economic Zones foster economic development? Evidence from South Africa

This paper evaluates the effectiveness of Special Economic Zones (SEZs) as instruments of economic development in South Africa. Drawing on rich administrative tax data and employing a difference-in-differences identification strategy, we examine how SEZ participation affects firm-level outcomes, including exports, investment, employment, and productivity. Contrary to the common expectation that SEZ participation boosts firm performance, the results suggest that SEZ firms generally underperform their non-SEZ counterparts. In particular, self-reported SEZ firms exhibit significantly lower export performance and reduced productivity. Although other performance indicators, such as total assets, employment, and sales, are statistically insignificant, their estimated coefficients consistently suggest weaker outcomes for SEZ firms. Importantly, the negative impact on exports is more pronounced for small SEZ firms, while larger firms report higher wage bills. These findings suggest that, in the South African context, SEZs are not meeting their developmental objectives, highlighting the need for more targeted and better-enforced industrial zone policies.