By Samia Khalid ISLAMABAD, Mar 01 (INP-WealthPK): The trickle-down effects of the China-Pakistan Economic Corridor (CPEC) will be achieved through special economic zones (SEZs) and the relocation of enterprises from China. While SEZs have had a positive impact on the economies of many countries, they come at a cost to governments in the form of tax breaks offered to entice investors to the zones. The SEZs have also assisted in the transfer of technology, adoption of contemporary management methods, and the upgrading of skills in most emerging economies. Many countries, including the Republic of Korea, China, Vietnam, Bangladesh, Mauritius, the Dominican Republic, and El Salvador, have successfully adopted SEZs over the years. These SEZs have also attracted foreign direct investment (FDI) to the host countries, leading to increased foreign exchange profits, exports, and government income. These SEZs promote industrialisation, economic development, and growth. The SEZs are mostly accompanied by technology and knowledge transfers to the host country. Firms operating outside the zone have both positive and negative externalities, or productivity spillovers. However, right policies are required for this spillover to have a beneficial influence on the economy. Benefits to society must outweigh the drawbacks. The SEZs will not reduce unemployment until the governments develop improved labour regulations that can be applied in the zones. In the cases of China and Bangladesh, it has been observed that these zones have generated employment opportunities with right policies and a better business climate. According to the World Bank, SEZs in China are estimated to have created over 30 million jobs, increased participating farmers' income by 30%, and accelerated industrialisation, agricultural modernisation, and urbanisation. In Pakistan, vulnerable groups have been struggling for economic growth for the previous 74 years. They are not affected by the trickle-down effect since it does not reach the poor until economic development is sustained for 20–30 years. Therefore, most people didn’t benefit from the trickle-down effect of economic growth. Pakistan has now implemented a number of reforms aimed at boosting economic growth while also taking advantage of the CPEC. One of the most important aspects of this partnership is industrial cooperation, which has resulted in the creation of SEZs along the CPEC routes across the country. Understanding the entire dynamics of SEZs and their implications for the larger domestic economy is critical for Pakistan. Policymakers must be aware of the positive and negative externalities of SEZs and design policies based on international best practices. The SEZs that produce spillovers and stimulate institutional improvements in the larger economy are considered successful. The SEZs produce externalities for businesses outside the zones in the long run by encouraging such firms to adopt superior practices from inside the zones. It is critical that the planned SEZs provide good spillover effects for local businesses. Moreover, the enterprises operating in the zones are required to relocate their skilled labour force. It is critical to establish a vocational institution to teach people in order to further foster skill development, and the institute should collaborate closely with businesses. Pakistan's current emphasis on SEZs as part of the CPEC projects has the potential to boost business productivity, integrate Pakistan into global value chains, and revitalise the country's manufacturing economy in the long run. The SEZs in Pakistan are expected to create a large number of jobs. Therefore, Pakistan offers special incentives to investors in industries in SEZs, which include a one-time duty and tax exemption on plant and machinery imports, a five-year tax exemption during project construction and development, a 10-year tax holiday during operation and production, and additional five-year tax holidays for a total of 20 years of tax exemption. The advantages of industrial relocation, particularly of textile businesses from China into SEZs, are that they can benefit from Pakistan's textile expertise and local raw material availability. Based on China’s SEZ experiences, the establishment of SEZs should aim to improve the country's overall business and employment climate. This may be accomplished by improving infrastructure and trade facilitation in the zones to attract foreign and local investment. It is critical that the proposed SEZs benefit the whole economy, as well as employees and businesses outside the zone through spillover benefits. This is critical in order to show that these zones are not isolated atolls within the economy, but rather test beds for policies that promote economic growth.