Manufacturing structural transformation: the consequences of Special Economic Zones in India

Abstract
Many developing countries are characterised by relatively low productivity in agriculture, while large fractions of the labour force remain employed in this sector. This lack of sectoral reallocation, combined with China’s successes in changing its industrial composition, has inspired policymakers in these countries to try and force structural transformation using place-based policies. I evaluate the impact of one of these policies: India’s 2005 Special Economic Zone (SEZ) Act. With the explicit goal of fostering manufacturing growth and stimulating exports, the Act allowed for the creation of SEZs; with firms located in these SEZs being granted tax benefits, lower import tariffs for intermediate inputs and vastly improved regulatory access. Using village-level data on agricultural productivity and economic activity, and subdistrict-level data on land use and plot distribution, I aim to understand the impact of SEZs on (local) structural transformation.