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Importance Of Industrial Cooperation (IC) Through The Developments
Of Special Economic Zones (SEZs) Under China-Pakistan Economic
Corridor (CPEC)
Research Supervisor:
Co-Supervisor:
Department
Riphah Institute of Public Policy
Date: _____________
Table of Contents
Abstract ............................................................................................................................................................................... 1
Chapter 1 ................................................................................................................................................................................. 2
1.1.
Introduction: ............................................................................................................................................................. 2
1.2.
Importance of SEZs .................................................................................................................................................. 2
1.3.
Industrial Cooperation (IC) through SEZs under CPEC ...................................................................................... 3
1.4.
Framework of SEZs ................................................................................................................................................. 3
1.5.
Other Forms of Economic Zones ............................................................................................................................ 4
1.5.1.
Industrial Parks (IP) ............................................................................................................................5
1.5.2.
Eco-Industrial Park (EIP) ....................................................................................................................5
1.5.3.
Technology Parks (TP) ........................................................................................................................6
1.6.
The Role of Government in Development of SEZs ................................................................................................ 6
1.8.
Problem Statement ................................................................................................................................................... 7
1.9.
Research Objectives ................................................................................................................................................. 8
1.10.
Research Questions .............................................................................................................................................. 8
1.11.
Significance ........................................................................................................................................................... 9
Chapter 2 - Literature Review ............................................................................................................................................. 11
2.1.
Theoretical Framework ......................................................................................................................................... 11
2.1.1.
Global Perspective ............................................................................................................................................. 11
2.1.2.
Why Special Economic Zones? ......................................................................................................................... 29
2.1.3.
Existing SEZs in Pakistan ................................................................................................................................. 33
2.1.4.
SEZ Act 2012 – the inception till first amendment ......................................................................................... 34
2.1.5.
SEZ Colonization ............................................................................................................................................... 37
2.1.6.
Anticipated Impact of SEZs and PSEZs in Pakistan: ..................................................................................... 39
2.1.7.
SEZs and Economic Development .................................................................................................................... 41
2.1.8.
Empirical evidence across the globe:................................................................................................................ 42
Chapter 3 - Research Methodology ..................................................................................................................................... 50
3.1
Introduction ............................................................................................................................................................ 50
3.2
Research Design...................................................................................................................................................... 52
3.3
Research Approach ................................................................................................................................................ 53
3.4
Data Collection ....................................................................................................................................................... 53
3.5
Organization of Thesis ........................................................................................................................................... 54
Chapter 4 ............................................................................................................................................................................... 55
4.1
SEZs and Potential Opportunities for Industrial Transformation in Vietnam ................................................ 55
4.2
CPEC and Potential Opportunities for Industrial Transformation in Pakistan............................................... 62
4.3
Industrial transformation in China and Opportunities for Pakistan: ............................................................... 63
4.3.1
5
How to maximize returns from these opportunities? ................................................................... 66
Chapter 5 – Conclusion and Recommendations ...................................................................................................... 74
5.1
Conclusion ............................................................................................................................................................... 74
5.1.1
Opportunities .................................................................................................................................. 74
5.1.2
Challenges of SEZs ........................................................................................................................... 75
5.1.3
Strategic Policy Directions for SEZs: A Way Ahead ........................................................................ 77
5.2
Policy Implications and Recommendations ......................................................................................................... 81
References: ............................................................................................................................................................................ 84
List of Figures
Figure 1 - Types of Economic Zones ...........................................................................................................................5
Figure 2 - Types of Economic Zones ........................................................................................................................ 16
Figure 3 - Global Comparison of Different Countries as per report of UNIDO........................................................ 18
Figure 4 - Economic Zones and Stage of Economic Development as Per Report of UNIDO ................................... 18
Figure 5 - REMs in Periodic Table ............................................................................................................................ 44
Figure 6 - Classification of REMs.............................................................................................................................. 44
Figure 7 - Industries where REMs are highly demanded......................................................................................... 45
Figure 8 – World Production Chart of REMs (Source: https://www.nrcan.gc.ca/) ................................................. 46
Figure 9 - Rare Earth Ores Production Capacity ...................................................................................................... 46
Figure 10 - Global Mine Production of Rare Earth Elements .................................................................................. 47
Figure 11 - REMs in Afghanistan .............................................................................................................................. 47
Figure 12- Deposits of REMs in Pakistan ................................................................................................................. 48
Figure 13 - Exports and Imports of REMs (In Percentage) ...................................................................................... 49
Figure 14- Exports and Imports of REMs (In Dollars) .............................................................................................. 49
Figure 15 - FDI Inflow in Vietnam ............................................................................................................................ 55
Figure 16 - Investment in Vietnan through FDI during- ......................................................................... 56
Figure 17- FDI Projects and Registered Investments -) | Source: World Bank (2018) ........................... 57
Figure 18 - Industrial Revolution 4.0 Model ............................................................................................................ 58
Figure 19 – Importers of REMs | Source: Statista.com ........................................................................................... 59
Figure 20 - Global Imports of REMs | Source: Statista.com .................................................................................... 60
Abstract
This study is focused on the importance of Industrial Cooperation (IC) through the
developments of Special Economic Zones (SEZs) under China-Pakistan Economic Corridor
(CPEC) through the utilization of Total Factor Productivity (TFP). When we say Industrial
Cooperation then it refers to the state of the country and focus towards the establishment of
relations with other countries forthe long-run in the industrial development (Ginevičius, 2010).
While analyzing the impact of SEZs at the government level then public policy making is done
with the core idea of generating employmentin the surrounding area of SEZs, ensure economic
development in the long run, implement structural and Ease of Doing Business (EODB)
reforms in the country, and ensure these SEZs as supplement to the trade and commerceof the
country (FIAS, 2008). When we say SEZs development and establishment in Pakistan then
CPEC initiative as the pre-requisite and a core component of One Belt One Road (OBOR)
which is also called Belt and Road Initiative (BRI). Economic development such as development
of SEZs also involves different challenges such as security issues, possibility of exploitation of
underdeveloped country economy through debt-trap diplomacy, structural problems like
unwillingness to perform the duties effectively and efficiently, inability of surrounding
inhabitants to get job due to lack of technical expertise in the beginning stages of development,
etc. So, this kind of issues can be handled only if the positive attitude of the people of Pakistan
or any country having a need of development of specialized SEZs with the intention and
preference to national interest at priority as well as willingness to learn and generate some
economic activity through employment generation in the country. The study found out that the
development of SEZs faced a lot of difficulties in the beginning due to absence of Ease of Doing
Business reforms in Pakistan which were addressed in later years and continuously improving.
Keywords: Special Economic Zones (SEZs), China Pakistan Economic Corridor (CPEC),
Total Factor Productivity (TFP), Ease of Doing Business (EODB), Economic Development,
One Belt One Road Initiative (OBOR), Debt-Trap Diplomacy
1
Chapter One
1.1. Introduction:
The concept of Industrial Cooperation with the help of SEZs under CPEC is having the prime
importance in Pakistan due to its diversified nature and extremely beneficial to the economy of
Pakistan. At first stage, it is important to understand the concept of Special Economic Zone (SEZ).
When we talk about the SEZ then it means the industry which is located in the national territory after
having special benefits in the form of tax relief, subsidies, import duty relief, custom duty relief,
subsidized rates of utilities like electricity and gas for production, higher benefits on exports of
goods, and extremely low corporate tax rate (Neelankavil, 2015). Now the next question arises about
the importance of SEZs in any country is that either these SEZs contribute in the economy of the
selected demography or not? Then the research has proved that the SEZs are having a very strong
impact and contribution towards the betterment and economic growth as well as these SEZs are also
proved to be the failures in some cases. But majority of the countries are benefited from the
development of SEZs through attracting more Foreign Direct Investment (FDI) in the country.
1.2. Importance of SEZs
The countries having more appropriate features of knowledge base business climate are
benefitted from the development of SEZs as local producers are encouraged to produce more quality
products and opt for the new technology to meet the global standards in order to export their products
(Johansson, 1997; Romer, 1993). SEZs are also the key to have success in achievement of goal of
faster economic development (Basile, 1984; Qian, 1998). So the results of success or failure of the
SEZ are more dependent on the variables like quality of the development of infrastructure,
geographical location of the SEZ, and the size of the SEZ (Farole, 2011; Pradeep, 2008).
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1.3. Industrial Cooperation (IC) through SEZs under CPEC
This concept of industrial cooperation and establishment of SEZs also makes it necessary
for any country to fulfill the standards and improvements in Ease of Doing Business (EODB)
initiatives. This was first introduced in 2002 (Simeon Djankov, Rafael La Porta, 2002) after
studying economy of 85 countries at initial stages and incorporated 5000 regulatory reforms until
2020. Now is it composed of 190 countries after 18 years of intensive empirical research for the
development of sustainable framework?
Industrial cooperation with the help of establishment of SEZs under CPEC is directly and
indirectly related to operational activities and infrastructure development for the purpose of ensuring
the sustainable growth of the economy in a long-run in order to meet the international standards
and to compete in the international markets (Brulin, 1995). IC will help the economy of Pakistan
to excelin such a way that the new technology as well as the latest and new methods of production
can be introduced in addition to the attraction of such business units which can be beneficial for
Pakistan likewise industries related to operations in exploration of Rare Earth Metals (REMs) which
are total 17 in number out of which 12 are found in Pakistan which is an excellent opportunity to
enter in this line of business with the help of joint venture with the foreign partners. This venture
can benefit only with the opportunity of establishing another Special Economic Zone on CPEC
(Week et al., 2019).
1.4. Framework of SEZs
The framework for the establishment of Special Economic Zones is also available and
integrated in the online system which is the new breakthrough for developing economy of Pakistan
(Gauthier, 2011). Digitization process at the regulatory levels in Pakistan has enabled the
economyto reduce the lags and hurdles in order to maximize the output and reduce the time frame
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