growing service-orientation of some FETAs is, therefore, a much wider and more
ambitious concept than the free ports, because it encompasses not just traditional trading
and transporting activities but also modern financial and business services such as
banking, insurance and data processing. The concept of FETA as such a service-oriented
(and services-cum-manufacturing) zone could also encompass some tourism or
educational services (United Nations Centre on Transnational Corporations, 1991).
However, according to past experiences world-wide, FETAs have not usually developed
along lines originally planned. Furthermore, the economic and social benefits of a zone
tend to be much greater (or much smaller) than anticipated, and in most cases quite
different from what had originally been planned. These facts are well indicated by the
development of a number of zones into industrial mono-cultures, rather than into the well-
balanced and highly diversified industrial parks envisaged by the planners. The
phenomenon is due to a number of complex sociological and economic reasons which
suggest that a FETA maintains a life of its own and an internal dynamism that one can
hardly predict in the planning process. The mistakes made during the planning and design
stage have also led to the failure of FETAs in many countries, which include, for example,
the choice of an underdeveloped region with poor road and air communications;
insufficient attention to the other basic infrastructure (such as telecommunications or
electricity supply, etc.) and to the overall interregional and/or international accessibility of
the region; a mismatch between skills of indigenous work forces and those required for
new production activities, etc. To a larger extent, the successful development of a zone
also seems to be led by the ability and flexibility of the zone authorities to react to
changing (particularly economic) circumstances, to make the necessary mid-course
corrections, to adjust the zone’s institutional structure to new problems arising with zone
development and, more generally, to develop an effective evaluation and problem-solving
mechanism (Tuppen, 1993; United Nations Centre on Transnational Corporations, 1991).
Effects of Various Tax Concession Measures on Investment Decision
The generosity of different types of tax concessions in combination with corporate tax
rates can be determined on the basis of the so-called Samuelson’s true economic
depreciation (TED). Under the assumption that
• a self-financed investment costing C generates an infinite stream of future gross return,
• this return exponentially declines at a given rate (0 < α < 1) and
• all prices are constant over time (i.e. π = 0),
Samuelson (1964) showed in his fundamental theorem of tax-rate invariance that
corporate income taxation does not affect firms’ investment decisions at all, when TED —