Cirera, X and Lakshman, R, 2014. The impact of export processing zones on employment, wages and labour conditions in developing countries, 3ie Systematic Review 10. London: International Initiative for Impact Evaluation (3ie).Link to Source
Headline Findings: a summary statement
The evidence in relation to the impact of export-processing zones on labour-market outcomes in developing countries is mixed, possibly favouring total employment but not working conditions.
The authors included 59 studies from a range of developing countries. Sectors analysed included textiles, clothing, and apparel, electronics, chemicals and pharmaceuticals, toys, and aluminium industries.
Implications for policy and practice
- There is a lack of studies which examine the employment impacts of EPZs, and there is no conclusive evidence of additional employment impacts. However, EPZs are found to employ a considerable number of new entrants to the labour market, and there is no evidence of firms reallocating from outside to inside EPZs, which suggests that there may be additional employment impacts.
- There is some evidence to suggest that export-processing zones increase female participation in the labour market, although the sector composition of EPZs (they tend to be more female-intensive) may also be a factor in this.
- Most of the studies that researched impacts on wages found that export-processing zones generally pay higher wages, although in some cases there is evidence of the opposite. There is also mixed evidence about any effects on a gender wage-gap.
- Some export-processing zones ban unionisation by law, but the evidence comparing union rights outside and inside export-processing zones is inconclusive, with the authors unable to conclude whether restrictions on union rights are attributable to EPZs themselves, or to general failures in domestic labour institutions.
- There is both anecdotal and robust evidence that health problems are more common in some export-processing zones: the few studies that compare conditions for workers inside and outside EPZs show conflicting results.
- There is also some evidence of longer working hours in export-processing zones, which in some cases are compulsory and inadequately remunerated. However, in comparison with the working hours of firms outside EPZs, the evidence is again mixed.
- The authors also conclude that negative labour outcomes appear to be the result of regulation derogations or of a lack of law-enforcement capacity in the country in question, rather than being issues specific to EPZs.
Implications for further research
The authors call for more primary research, using better study designs and methodologies, particularly the proper use of counterfactuals. They also call for the following issues to be addressed in future research: there needs to be more detailed assessment of additional employment created; published studies should be updated to determine current relevance; the effects of sector composition and export-processing zones on labour outcomes should be compared; studies should also compare labour outcomes between similar firms within the same sector, both inside and outside export-processing zones.
Export-processing zones (EPZs), sometimes called free-trade zones, are defined as 'industrial zones with special incentives set up to attract foreign investors, in which imported materials undergo some degree of processing before being exported again' (International Labour Organization, 1998). They are designed to address the low investment in manufacturing sectors experienced by many developing (and some developed countries) by attracting greater investment in the EPZ to start producing export goods; this creates a demand for labour, which has a positive impact on employment, wages, and labour conditions in the area, and ultimately on the domestic economy. Typical incentives include exemptions from export taxes, import taxes, profit taxes, and value-added taxes; exemptions from foreign-exchange controls; freedom to repatriate profits; exemptions from certain labour laws; provision of enhanced infrastructure; and subsidised prices for public utilities. Tax exemptions, regulation exemptions, and infrastructure incentives have made EPZs one of the most common instruments of industrial policy in the world. Despite the wide implementation of export-processing zones, particularly in Asia and Latin America, there is not much evidence for their impact on employment and wages, and they have been criticised by civil society for their poor associated working conditions. This review aims to evaluate the evidence on the impact that export-processing zones have on labour outcomes in developing countries.
The authors aimed to assess the impact of export-processing zones on additional employment created, wage levels, and labour conditions (focusing on freedom of association, working hours, and health and safety) and the gender impact of these outcomes.
The authors included econometric, qualitative, survey, and comparison studies assessing the impact of export-processing zones on employment, wages, and labour conditions (specifically on freedom of association, health and safety, and working hours) in developing countries. Studies of employment were required to try to measure additionality, and studies of wages and labour conditions had to provide some comparison with labour outcomes outside the zone. Studies documenting gender differences for each of the outcomes were also included. The authors searched for papers published in English, Spanish, or Portuguese, after 1980, in the following databases: Social Sciences Citation Index (SSCI), IDEAS, International Bibliography of the Social Sciences (IBSS), EconLit, JOLIS, British Library of Development Studies, Web of Science, Google Scholar, and ILO’s Resource Guide on Export Processing Zones. They also manually searched the websites of the World Bank and the United Nations Conference on Trade and Development, and conference proceedings in the Web of Knowledge and ProQuest dissertation database. They hand-searched the following journals: World Development, World Economy, and the Journal of Economic Surveys; and they conducted back-referencing and citation tracking. The authors used thematic synthesis to examine the findings of the studies.
The review authors conducted thorough search of the published and unpublished literature. In addition, the review is timely and well conceived, focusing on a range of policy-relevant outcomes, and the authors provided a comprehensive summary. The review authors were not able to conduct a statistical meta-analysis for the quantitative studies, or justify the use of significance-based vote-counting. Finally, the authors do not detail the screening and extraction process or provide readers with a complete summary of all excluded studies.