The Kiel Institute analyzes economic activity in Free Zones
There are more than 5,000 Special Economic Zones worldwide, and the trend is rising. According to the OECD, the so-called Free Zones are responsible for exports worth at least 3,500 billion a year – equivalent to around 20 percent of global trade in goods. Despite their importance for the global economy, little is known about economic activity in Free Zones. On behalf of the World Free Zones Organization (World FZO), the Kiel Institute for the World Economy took charge of the World Free Zones Economic Outlook, an annual comprehensive review of economic activity, and the Free Zones World Economic Barometer (F-WEB), a quarterly sentiment indicator for Special Economic Zones.
Special Economic Zones or Free Zones are geographically defined areas in which companies are subject to special rules that differ from those in the rest of the country. Investors are often granted tax breaks, duty exemptions and other financial incentives. In addition, they often benefit from simplified administrative procedures and high-quality infrastructure. Special Economic Zones are a widely used economic policy instrument, especially in emerging and developing countries, aiming at creating attractive investment conditions for companies and thus compensating for weaknesses in the national business environment. They usually aim to attract foreign direct investment, increase and diversify exports and create jobs. Additionally, governments expect the domestic economy to benefit from knowledge and technology spillovers in the long run.
Special Economic Zones are particularly widespread in Asia, where they are regarded as a key engine of the export-oriented growth in recent decades. However, there are also Free Zones in industrialized countries: The United States, for example, host more than 250 so-called Foreign Trade Zones. The number of Special Economic Zones worldwide is currently estimated at more than 5,000, according to UNCTAD’s World Investment Report 2019. In the 1980s this figure was still below 200. Despite the veritable boom, surprisingly little is known about economic activity in Special Economic Zones. The World Free Zones Organization (World FZO) in cooperation with the Kiel Institute for the World Economy aims at changing this.
The World Free Zones Organization is an international non-profit organization that has been representing the interests of Special Economic Zones since 2014. In cooperation with the World FZO and starting in 2018, the Kiel Institute for the World Economy produces the World Free Zones Economic Outlook report on a regular basis. For this purpose, the Kiel Institute conducts a detailed survey among Free Zone representatives in order to improve data availability on the economic activity of the zones. The analysis of the survey results is complemented by an overview of general global economic developments as well as by special topics of particular importance for Special Economic Zones. The latest World Free Zones Economic Outlook (2020) report is available to the general public on the website of the World FZO. In addition, on an irregular basis, the Kiel Institute analyses the economic activity of Free Zones in selected countries, including their contribution to the economy.
Moreover, the Free Zones World Economic Barometer (F-WEB), a sentiment indicator based on a quarterly survey among zone representatives, was established in early 2018. It is designed to gauge the current momentum of economic activity in Special Economic Zones around the globe and give indication about future trends. Due to the importance of Free Zones for global trade, the F-WEB is expected to capture current economic trends beyond Special Economic Zones and could become an early indicator of global economic activity given the broad-based participation of Free Zone representatives. The results of the F-WEB are published in a short note on a quarterly basis. Survey participants have preferential access to the reports but they become available to the general public with a lag of two weeks as well. More information on the design and methodology of the F-WEB can be found here; the quarterly F-WEB notes can be accessed below.