Does a special economic zone impact the surrounding economy? The case study of Kendal, Indonesia

Abstract

Special Economic Zones (SEZs) have become pivotal instruments for fostering regional development and industrial growth worldwide, yet comprehensive socioeconomic and spatial impacts remain crucial for understanding their true potential. This study aimed to evaluate the impact and identify the challenges of the SEZ in Indonesia, namely Kendal SEZ, by employing a mixed-methods approach to better capture the nuances of the SEZ’s impacts on the surrounding economy. A qualitative analysis was conducted as an exploratory phase involving SEZ management, enterprises, and government representatives. The quantitative analysis used Propensity Score Matching-Difference in Difference (PSM-DiD) and Geospatial Methods. Findings reveal a positive impact on increasing total household expenditures, reflecting enhanced community well-being. This SEZ strengthened the manufacturing sector, as evidenced by the increased location quotient. Spatial analysis reveals heightened economic activity via Night-Time Light emissions. The Kendal SEZ emerged as a driver of local economic growth and advanced industrial development among Indonesia’s SEZ models despite challenges like infrastructure and technical limitations. Our study contributes robust empirical evidence of the direct and indirect impacts of SEZs on regional economic development. We suggest that future policy considerations should address infrastructure and workforce challenges to sustain and enhance the benefits of SEZ.

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