Mechanisms of Foreign Direct Investment and Economic Diversification in Special Economic Zones
The deployment of special economic zones serves as a core policy mechanism to channel foreign direct investment into targeted industrial sectors, accelerating domestic economic modernization. Empirical evaluation of zone-led development highlights that continuous capital inflows generate positive macroeconomic spillovers and sustained industrial expansion when institutional frameworks support structural absorption (crossref-10-31219-osf-io-nxv6a-v1, 2025). Rather than functioning solely as tariff-free enclosures, successful zones facilitate technology transfer and structural upgrading, which diversifies the productive capacity of the host territory. However, comparative evidence from transition contexts demonstrates that the mere establishment of designated zones does not guarantee diversified industrial growth; persistent structural rigidities, limited institutional autonomy, and weak domestic linkages can constrain the transformative impact of foreign investment (crossref-10-35866-caujed-2015-40-2-002, 2015). Consequently, the capacity of economic zones to drive broader diversification relies on the strategic alignment between preferential regulatory policies and the domestic economy, preventing capital concentration within isolated enclave environments. When planned effectively, these zones bridge foreign capital with local industrial supply chains, providing the necessary institutional stability and infrastructure to transform localized investment into systemic economic resilience.