Some economists might be bewildered given the distortionary nature of the incentive scheme, price mechanism and preferential treatment of foreign investments versus local, all of which are embedded in the zone modality.

Furthermore, it can also create unnecessary social costs such as the need for resettlement, risks to environmental protection, and sometimes labor disputes. Then, why are zones set up? Simply put, it is because gains from special economic zone (SEZ) far outweigh associated economic and social costs. Export revenues can be far greater than shortfalls in tax revenues from tariff exemptions.

Corporate tax reductions or exemptions can generate much greater employment, in addition to spillovers from foreign technology, and SEZs boost the growth of local economy through backward and forward linkages between firms inside and outside the zones. — blogs.adb.org/blog