Question

How is the development of an SEZ (special economic zone) expected to influence the cost structure of a firm?

Answer 1

An SEZ offers multi-faceted infrastructural facility for the firms operating in the specified zone. It offers facilities of raw material, transportation, banking and insurance services. These facilities generate external economies for all the firms located in the SEZ. Due to the external economies, cost structure of an individual firm tends to be moderated. Unit cost of production is lowered.

Also, many industries can produce for lower costs due to many concessions and reductions in tariffs applicable in these zones, which further reduces the cost incurred.