Factors Affecting Firm-Level Investment and Performance in Border Economic Zones and Implications for Developing Cross-Border Economic Zones between the People's Republic of China and its Neighboring GMS Countries. Zanxin Wang

      © 2011 Asian Development Bank

      All rights reserved. Published 2011.

      Printed in the Philippines.

      ISBN 978-92-9092-454-8

      Publication Stock No. RPT114047

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       Acknowledgments

      The research team would like to acknowledge with thanks, the financial and technical support provided to this research project by the Asian Development Bank (ADB) under the Phnom Penh Plan for Development Management (PPP) Project.

      The authors wish to express their special thanks to Aradhna Aggarwal, research advisor, for her valuable contribution to the development of the research methods and instruments, and in the overall analysis of the research findings; and to Steven Lim and Guangwen Meng, peer reviewers, for their insightful critique and appraisal of the final report. They also wish to thank Phung Xuan Nha and other reviewers for their comments and suggestions.

      The authors appreciate the very useful comments provided by other research advisors as well as colleagues from other research teams during the many workshops held to discuss the research report.

      Finally, our special thanks go to ADB’s PPP team—to Alfredo Perdiguero and Carolina Guina for their overall guidance and management of the research program, to Jordana Queddeng for managing the business arrangements and the publications processes, to Caroline Ahmad and Leticia de Leon for editing the manuscripts, to Pamela Asis-Layugan for her continuing and solid support, and to Alona Mae Agustin for her assistance in the overall implementation of the program.

       Foreword

      The Greater Mekong Subregion (GMS) Phnom Penh Plan for Development Management (PPP) was launched in 2002 to build a core of highly trained development managers in the GMS countries who would play a key role in shaping policy choices towards the vision of a more integrated, prosperous, and harmonious subregion. The PPP’s programs for capacity building include (i) learning programs for GMS civil servants, (ii) short-term high impact programs for top and senior level officials, and (iii) dialogues on development issues. In 2004, the PPP initiated the publication of the Journal of GMS Development Studies—a multidisciplinary publication that seeks to promote better understanding of development issues in the GMS among planners, policy makers, academics, and researchers.

      As GMS countries continue to face increasingly complex challenges of economic development, the knowledge base required to inform policy choices has become increasingly important. Learning courses provide the tools but not the empirical basis for designing policy. Moreover, the differential impacts of policies among various publics need to be better understood to assess the appropriate trade-offs. This policy-knowledge gap is more apparent in the less developed GMS countries where research institutions have limited capacities and resources to conduct policy-based research. Recognizing this, and in an effort to bring its capacity building goal to a higher plane, the PPP Research Program was launched in March 2009 to help promote a more effective link between knowledge generation and policy formulation.

      The PPP Research Program aims to engage research institutions in the policy process by supporting scholarly works that would bring multifaceted perspectives on development issues and provide new knowledge on the impacts and consequences of policy choices. By providing resources and opportunities to the GMS research institutions, the PPP Research Program could be a potent and active partner in the development process.

      To carry out these objectives, the PPP Research Program provides financial support (grants) and technical assistance to indigenous GMS research institutions and think tanks for conducting research on subregional development issues. The grants are directed to research projects that tackle subregional issues confronting the GMS; this subregional focus intends to ensure that the PPP Research Program’s outputs would be useful to the GMS Program agenda, and would not overlap with other research support provided to the study of national development issues.

      The PPP Research Report Series features the scholarly works that have been supported by the PPP Research Program. It is hoped that by disseminating the research results to a wide audience, the breadth and depth of the GMS development challenges can be better appreciated and understood by policy makers, implementers, and other stakeholders in the subregion. Through this, the PPP Research Program would have made a modest contribution in responding to the opportunities and challenges brought about by greater economic integration in the subregion.

      Alfredo Perdiguero

      PPP Program Manager

       Abstract

      The establishment of cross-border economic zones (CBEZs) in the border areas of the People’s Republic of China (PRC) and its neighboring Greater Mekong Subregion (GMS) countries has recently emerged as a strategy for further promoting trade and investments in the subregion. Unlike a border economic zone (BEZ), which is confined within the national territory, a CBEZ is an economic zone traversing a transnational area and requiring a unified set of policies and incentives in such areas as finance, taxation, investment, trade, and customs regulation. While no CBEZ currently exists in the GMS, the establishment of this type of zone has recently been initiated for Hekou–Lao Cai along the North–South Economic Corridor border involving Yunnan Province in the PRC, and Lao Cai Province in Viet Nam. The design of incentive packages to be implemented in the CBEZ is thus a major challenge for policy makers. To help inform the design of incentive policies in CBEZs, this research studied BEZs in selected border areas in Yunnan Province, and in Lao Cai Province, with the objective of assessing (i) the factors that attract investments to the zones, and (ii) the effects of investment incentive policies on the performance of firms locating in these zones. Using