Do special economic zones help the diversification of African economies?

Abstract

This paper analyses the effect of special economic zones (SEZs) on economic diversification using a sample of 45 African countries over the period 1996–2021. After constructing the SEZ variable by means of a literature search and using Bayesian analysis to select the relevant determinants of diversification and the entropy balance method to assess the impact, we established that countries that have adopted SEZs notice an improvement in their level of economic diversification compared to those that have not, all other things being equal. This result remains valid when controlling for a range of economic, geographic, socio-cultural and institutional variables. The results are robust with various alternative measures of SEZs, the use of alternative estimation methods and sample heterogeneity by geographic region. Financial development, technological development and labour force are the main channels through which SEZ adoption increases economic diversification in African countries.