Special economic zones and innovation in developing and emerging economies: A cross-country analysis

Abstract Special economic zones (SEZs) have become a widely adopted economic policy tool in developing and emerging economies, particularly over the last two decades. Despite the increasing importance of SEZs, the literature on their impact on innovation remains scarce and non-conclusive, with most existing literature focused on single-country case studies. Our research addresses this gap by offering an analysis across multiple countries. We employ a difference-in-differences (DiD) approach to find out whether SEZ establishment has an impact on innovation activity within these zones. Our results demonstrate a positive effect of SEZs on patent numbers, indicating that SEZs can indeed stimulate innovation. Additionally, we uncover heterogeneous effects on different innovation activities, with SEZs having a stronger influence on high-tech compared to low-tech industries. Moreover, the impact of SEZs varies across different technological fields, highlighting the sector-specific nature of innovation dynamics within SEZs.