Special economic zones: world practice, experience and alternative concept for Ukraine

Abstract

The absence of progressive structural changes in the Ukrainian economy during the independence period has led to a significant lag in socio-economic, industrial and technological development. Ukraine is lagging behind advanced countries, as well as many developing ones. In order to change this situation, public policy should focus on the application of tools that will facilitate investment inflows and revitalize the economy. The paper deals with special economic zones as such tools. The objective of the paper is to substantiate the alternative concept of special economic zones in Ukraine as a tool for unlocking the innovation capabilities of regions, considering mistakes in the introduction of this tool in previous years and lessons from international experience in accordance with the strategic national goals under emergence of new industries. Methods of analysis and synthesis, comparative analysis and system approach have been used for this research. Scientific reports by international organizations, Ukrainian legislation, foreign and Ukrainian academic literature on this issue have been used as references. Special economic zones have been analyzed from the standpoint of three approaches: an orthodox, heterodox, and two approaches of evolutionary economics: vertical-specialized industrialization and agglomeration. Theoretical basis of the study is guidelines of new institutional economy and endogenous growth theory. According to them, SEZs have a positive influence on the investment climate and can change trends of the country's movement towards the advanced innovative growth. But it requires effective institutions, including competent government, appropriate and consistent state policy, which provides, first of all, investment in human capital, research and development, and knowledge-based industry. The sixty-year world practice of economic zones has been compiled. The Ukrainian experience in this field has been systematized. Reasons of Ukrainian SEZs’ failures, which consist in their initial perception as sources of political rent and abuse of power, are defined, which has caused significant gaps in legislation, the removal of the state from the arrangement of zones with the appropriate infrastructure and the provision of broad economically unjustified preferences to certain producers. The alternative concept of special economic zones in Ukraine is suggested as a tool for unlocking the innovation capabilities of regions in the form of stimulating regulatory regime, encouraging innovative investments, combining the system of incentives and privileges, obligatory control and restrictions to keep balance between interests of businesses and the state. Stimulating regulatory regime of economic zones is described as follows: {Goals of introducing the regime; Entities, subject to the regime; Limits of regime; Fiscal and non-fiscal preferences of the regime; Management structure of the zone to achieve the goals of the regime; Operation period of the regime}. The introduction of the regime will catalyze the generation of ideas for new products and services, development of knowledge-intensive activities, technological (sectoral) diversification of the regional economy, their integration into the global value chains on a more beneficial basis.

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