Association for Public Policy Analysis & Management

Policymakers have long experimented with place-based policies to promote economic growth in middle-income countries. One of such policies is the Special Economic Zones (SEZ), which are geographically-targeted regimes within a country with more liberal laws and economic policies designed specifically for the purposes of foreign direct investment (FDI), creation of jobs for high-skilled workforce, economic modernization, and diversification (Crane 1991). The Russian government launched its own SEZ program in December of 2005. The costs of projects realized within SEZ are on average 30-40 percent less compared to Russia general practice. My research focuses on industrial (2) and innovation (4) SEZs. Industrial SEZs have been selected based on geographical advantages in terms of transportation infrastructure and proximity to raw materials to attract foreign direct investment. Innovation SEZs are selected based on Soviet industrial legacy endowed with capital and skilled workforce to spur domestic entrepreneurship. Russia’s SEZ present an interesting quasi-experiment that I exploit through a panel of firm-level data on Russia’s 1.2 million firms. I conduct a difference-in-difference analysis on localities that adopted SEZs to non-SEZs. I examine whether SEZs through creation of business-friendly environment spurred entrepreneurial ventures, employment growth and multifactor productivity growth at every size and age category.