# **I. INDUSTRIAL PARKS: THEORY AND PRACTICE**

The rationale for industrial parks has traditionally been twofold. First, the provision of functional infrastructure is much easier to plan in a geographically limited space, particularly for deliveryconstrained governments.<sup>3</sup> Second, the concentration of firms can provide significant spillover effects both inside and outside the park<sup>4</sup> : information spillovers, including knowledge and technology; the specialization and division of labor among enterprises; the development of skilled labor markets; and the development of markets around the parks.<sup>5</sup> The general type of an industrial park is a concentrated set of firms operating on a demarcated ‘hard' infrastructure platform. Beyond this, a number of different forms have been developed. Most involve additional regulatory features, often to bypass unsupportive business environments, facilitated by the “limited” area involved, in which case the umbrella term is “Special Economic Zones” (SEZs). Such variations include: “tax” parks (which provide tax benefits); technology parks; “green” parks; “export processing zones”; and many others. In this paper, “industrial park” will be used in its most general sense, i.e., involving the provision of common infrastructure to a group of industrial firms in a demarcated area, while forms involving additional regulatory or other measures will be specifically denoted as such.

In whichever variant, industrial parks in theory are a tool to develop a more general form of industrial organization: industrial “clusters”, a concentration of interconnected firms in a particular field. Such clusters can form “organically”, or can be the target of deliberate policies.<sup>6</sup> The pursuit of active cluster development, like that of industrial parks themselves, can be a controversial policy goal. On the one hand, the growth of industrial clusters is frequently cited as a driver of China’s rapid growth. Many emerged spontaneously, but government (especially local government) also provided crucial support for their development.<sup>7</sup> On the other hand, cluster development, and industrial park and zone programs in particular, have also been subject to significant criticism. There have been controversies regarding land allocated for their construction, sometimes at large scale, especially when parks are long delayed or scarcely occupied, fueling accusations of land speculation. It has also proven difficult to demonstrate additionality, i.e. that the activity in parks would not have happened without their construction and the public money that has been spent to support it. This latter criticism has been strongest for policies that not only provide public money for park construction but forego revenues in the form of taxes or resort to specific regulations such as looser labor laws to attract investment.

Yet the criticisms seem to have had little to no impact on practice. Whether or not one side or the other of the general debate is correct, park and zone programs continue to proliferate, and many continue to under-deliver. To take just a few examples, many parks in Central America have eroded the tax base there; in Africa, industrial parks are often known to stand mostly empty even after many years; and a number of industrial parks in Afghanistan supported by various donors either did not

> 3 Marshall, A. (1920). Principles of Economics. London: Macmillan.

> 4 This review builds on previous writings by Douglas Zhihua Zeng (2006, 2010, 2011).

> 5 Sonobe, Tetushi, & Otsuka, K..(2006). Cluster-Based Industrial Development: An East Asian Model. New York: Palgrave Macmillan.

> 6 World Bank. (2010). Innovation Policy: A Guide for Developing Countries. Washington, DC: World Bank Institute; Porter, M. (1990). The Competitive Advantage of Nations. New York: Free Press; Schmitz, H. (1995). “Small Shoemakers and Fordist Giants: Tale of a Supercluster.” World Development 23 (1): 9–28..

> 7 Ganne, B., & Lecler, Y., eds. (2009). Asian Industrial Clusters, Global Competitiveness and New Policy Initiatives. Singapore: World Scientific Publishing Co. Pte. Ltd.

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