Free Trade Zone of Manaus: An Impact Evaluation using the Synthetic Control Method

• Main Author: Vítor Possebom
• Format: Article
• Language: English
• Published: Fundação Getúlio Vargas
• Series: Revista Brasileira de Economia
• Subjects: Free Trade Zone of Manaus; Enterprise Zones; Synthetic Control Method
• Online Access: http://www.scielo.br/scielo.php?script=sci_arttext&pid=S0034-71402017000200217&lng=en&tlng=en

I apply the synthetic control method to Brazilian city-level data during the twentieth century in order to evaluate the economic impact of the Free Trade Zone of Manaus (FTZM). I find that this enterprise zone had significantly positive effects on real GDP per capita and Services Total Production per capita, but it also had significantly negative effects on Agriculture Total Production per capita. My results suggest that this subsidy policy achieved its goal of promoting regional economic growth at the cost of creating mis-allocation of resources among economic sectors. They also reject the view that an industrialization policy will benefit all economic sectors due to positive spill-overs from the manufacturing sector that are strong enough to compensate for the negative effect of the mis-allocation of resources.