Complementarity and Synergies Between SMEs and SEZs Under CPEC: A Mechanism to Revitalize Industrialization in a Developing Economy of Pakistan

The small and medium enterprise (SME) sector is considered the backbone of an economy. The sustainable growth of the SME sector is crucial for industrial development, employment creation, import substitution, export promotion, and the economic uplift of any country, especially developing economies. However, due to resource constraints in a developing economy, it is difficult to industrialize to a large extent. For this purpose, developing special economic zones (SEZs) in a country’s selected areas is considered the second-best option to efficiently boost investment and effectively develop the industrial/manufacturing sector. Against the backdrop, this study attempts to probe the possible synergies between prioritized special economic zones (pSEZs) under the China-Pakistan Economic Corridor (CPEC) and SMEs through backward linkages, resource mobilization, and knowledge spillover to uplift the country’s domestic economy (dominated by SMEs and SEZs). The study modifies and employs the Warr’s enclave approach to depict the possible competing and complementing effects of pSEZs on SMEs and concludes that a balanced approach to developing synergy between pSEZs and SMEs is required to increase local investment in the domestic economy as well as attract foreign capital inflows/foreign direct investment (FDI) in pSEZs to complement the SME sector and revitalize industrialization.