The Impact of Special Economic Zones on Economic Development: Evidence from Nightlight Analysis in the Lao People’s Democratic Republic

Abstract

Over the past few decades, special economic zones (SEZs) have become a widely used industrial policy tool to support structural transformation and economic development. Yet their impact on the economy remains inconclusive, especially in developing countries where the lack of data presents a challenge. This study examines the potentially causal effect of SEZs on the economy of the Lao People’s Democratic Republic using harmonized nightlight satellite data as a proxy for annual economic activity in 148 districts from 1992 to 2021. Using counterfactual estimators for causal inference with time-series, cross-sectional data, SEZ establishment appears to result in a statistically significant increase in the economic activity of the host districts. Heterogeneity tests show that (i) SEZs in the Lao People’s Democratic Republic seem to have had a greater impact on economic activity after 2010, coinciding with the establishment of dedicated SEZ agencies; and (ii) industrial zones appear to have a higher impact than tourism zones.

Keywords

• causal inference
• counterfactual estimators for causal inference with time-series, cross-sectional data
• Lao People’s Democratic Republic
• nighttime lights
• special economic zone