of modern high-technology (Wall, 1993). On the other hand, this type of growth-pole
oriented policy has led to a serious spatial imbalance caused by the concentration of
foreign direct investments in coastal regions and has consequently widened the east-west
disparity in the economic growth of Chinese regions (Bishop, Formby and Zheng, 1996).
Besides, major theoretical justifications for the establishment of such economic zones
generally include that “... there [are] economies of scale in the development of land and in
the provision of common services and utilities [and] ... external economies of
agglomeration by having similar industries grouped together. [Furthermore]...
governments may wish to impose a geographical limit on the operation of some policies ...
and... to restrict certain activities to specific areas” (Wall, 1993, p. 248). For the
application of the latter justification in the transformation countries, it is additionally
suggested that, with the enclave nature of the FETA, the process of gradually opening
former command economies to the outside world can be controlled and modulated in a
much more subtle and sophisticated way than through a rapid global liberalisation of the
total national economy (United Nations Centre on Transnational Corporations, 1990).
According to the theory of agglomeration economies, economic growth and technology
development — particularly at the regional level — is influenced and stimulated by the
economies generated by spatial proximity and associated externalities (Glaeser et al.,
1992; Mills and McDonald, 1992; Moulaert and Djellal, 1995). By being located near
various numbers and types of firms in agglomerations or free trade and economic zones,
an easy and speedy business access (with low transportation costs) to other service and
industrial firms (suppliers, distributors etc.) or research institutions is guaranteed.
Furthermore, in the case of expanding similar industrial branches in a given location, firms
can realise economies of scale by using jointly supplied products (and raw materials) or by
specialising in production. An additional benefit includes the savings resulting from
intensive sharing of given major capital investment and infrastructure by a number of
firms in a geographic enclave. Within an economic zone that has a concentration of rapidly
growing (foreign and domestic) firms in an emerging dynamic industry and service sector,
the recruitment of a specialised labour force is also convenient: modern industrial and
service firms “that are growing quickly need to be able to recruit specialised, experienced
and skilled professionals who can meet specific requirements” (Mills and McDonald,
1992, p. 42). Additionally, such a geographic proximity makes the inter-firm
communication of new ideas, experiences and know-how among firms more efficient and
innovative (the so-called Marshall-Arrow-Romer externality of knowledge spillovers
between firms, Glaeser et al., 1992). Consequently, such advantages of agglomeration
economies provided by a FETA can have a positive effect on a local economy and
stimulate efficient production and generate productivity growth leading to higher per
capita income than that in the rest of the country (Bartik, 1991).