Formation of special economic zone, liberalized FDI policy and agricultural productivity

Formation of Special Economic Zone (SEZ) using agricultural land to promote industrialization has recently been one of the most controversial policy issues in many developing economies including India. This paper critically evaluates the consequences of this policy in terms of a three-sector Harris-Todaro type general equilibrium model characterizing a typical developing economy. It finds that agriculture and SEZ can grow simultaneously provided the government spends a substantial amount of its resources on irrigation projects and other infrastructural development designed at improving the efficiency of land. Agricultural wage and aggregate employment in the economy may also improve owing to this policy.