# **Box 1: Regional public goods**

<mark>A regional public good (RPG) is a service or resource whose benefits are shared by neighboring countries (the countries within the region). The benefits of pure regional public goods are “non-rival” (one country’s consumption does not subtract from the amount available to other countries) and “nonexcludable” (no country in the region can be excluded from benefiting, except at prohibitive cost). In reality, most RPGs are significantly, but not wholly, non-rival and non-excludable. Rather than being “pure,” they are “mixed,” meaning that they bestow a combination of national and transnational benefits</mark><sup>7</sup> <mark>.</mark> <mark>Three kinds of activities to pursue RPGs can be distinguished:</mark>

1. Non-country specific investments in knowledge, dialogue, basic research into technologies meant to be in <mark>the public domain (for example, vaccines) and negotiation of agreement on shared standards and policy regimes.</mark>

2. Inter-country mechanisms for managing adverse cross-border externalities or creating beneficial ones – <mark>e.g., coordinated public health measures to contain the spread of disease; investments in cross-border infrastructure to enhance the preconditions for growth through trade and integration among participating countries; creation of regional institutions to facilitate solutions in areas ranging from financial and banking stability to the sustainable management of shared environmental resources.</mark> <mark>3. Country-specific action to take advantage (or enable absorption) of the benefits created by the two means above. This will create national public goods such as improved policy environments and institutional indicators. In turn, these can engender transnational externalities.</mark> _<mark>Source: Adapted from Kanbur in Ferroni (2002)</mark>_ First, by concentrating core infrastructure around zones and addressing the constraints discussed above, zones reinforce processes of agglomeration and help industries to reach scale thresholds that will allow them to compete more effectively in regional and global markets. The benefits of creating competitive conditions for private sector development and an efficient trade gateway at the core will, however, spill well beyond the firms based in the zones to include firms through the regional supply chains that feed into them. Thus, SEZs benefits should extend well beyond the core. Second, SEZs may offer sectorspecific public goods, such as warehousing and logistics platforms, shared processing facilities, design centers, etc., that facilitate competitiveness of wider industry clusters in the region<sup>8</sup> . Third, they have the potential to serve as pilots for broader economic reforms in the region. The most well-known case of this is in China, where SEZs were used explicitly as a “testing ground” for major economic reforms. The public good here stems primarily from the demonstration effect that such zones can have on the wider national environment (and eventually on economic efficiency)<sup>9</sup> . Finally, in the EAC context, the use of SEZs on a region-wide level has the potential to facilitate institutional convergence both by demonstration effects and through greater interaction among policymakers and technical officials across member states.

> 7 The usual definition of the characteristics of “publicness” of public goods involves individuals as the relevant units. However, in the discussion of international public goods, countries, not individuals, are taken as the relevant units

> 8 Note these are not strictly public goods but rather “club goods”; they are excludable but generally non-rivalrous.

> 9 This is, of course, more difficult in a regional context than in a national one, due to the differing legal and political contexts across states.

6