Do special economic zones support regional development in transition economies? The case of Kazakhstan

This study examines the impact of Special Economic Zones (SEZs) in Kazakhstan between 2000 and 2023 on regional development, explicitly accounting for institutional and spatial heterogeneity. For causal identification, it employs a Forward Orthogonal Deviations-based GMMf (System GMMf) estimator to address endogeneity and reverse causality, complemented by an event-study framework to trace the dynamic evolution of policy effects. The results reveal strong path dependence in regional growth and show that the effectiveness of SEZ incentives is non-linear and systematically conditioned by the depth of regional production structures, proxied by the Value Added Index. Empirical evidence suggests that SEZ incentives stimulate growth in low value-added regions, while potentially distorting market signals and generating crowding-out effects in regions with high value-added production. Dynamic analyses indicate that the negative shock observed immediately after implementation reflects temporary adjustment costs and resource reallocation, with effects converging towards zero over time. Overall, the findings imply that SEZs are not automatic engines of growth but require careful calibration to local production structures to mitigate risks of policy saturation and adverse selection. The study provides an original contribution to the literature on the design and life-cycle management of next-generation industrial policies in transition economies.