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99-615: They are common in the United Kingdom and the United States. In other countries, regions with similar economic policies are often referred as export-procession zones, tax and duty-free zones, and special economic zones (SEZs) most predominantly present in China and India. The 1970s witnessed a shift in city planning, leaving behind post-war Keynesian policies and entering an era of growth machine. Urban planning had thrived during

198-642: A business, the right to import parts and equipment without duty, the right to keep and use foreign exchange earnings, and sometimes income or property tax breaks . There may also be other incentives relating the methods of customs control and filing requirements. The rationale is that the zones will attract investment, create employment, and thus reduce poverty and unemployment, stimulating the area's economy. These zones are often used by multinational corporations to set up factories to produce goods (such as clothing, shoes, and electronics). Free-trade zones should be distinguished from free trade areas . A free trade zone

297-482: A city, usually about 30%, as a UEZ. UEZs are usually located in the industrial and/or commercial portions of a city, within a continuous boundary. A 50% reduction in the general Sales tax rate (from 6.625% to 3.3125% as of January 1, 2018) and hiring incentives, are designed to reinvigorate the business climate within the Zone. These incentives have led to the construction of numerous malls and big-box retailers in parts of

396-456: A falling dollar made commodity producers demand higher prices to compensate for the dollar decline. Further, the weakening of the dollar, while exogeneous to oil prices, was itself a delayed response to rising inflation from 1968 onwards. This pattern of an overheated economy, leading to inflation, dollar depreciation, and then to higher oil prices and another bout of stagflation repeated itself in 1979. Both explanations are offered in analyses of

495-475: A faster rate than competitors. While in the aggregate no one appears to profit, differentially dominant firms improve their positions with higher relative profits and higher relative capitalisation. Stagflation is not due to any actual supply shock, but because of the societal crisis that hints at a supply crisis. It is mostly a 20th and 21st century phenomenon that has been mainly used by the "weapondollar-petrodollar coalition" creating or using Middle East crises for

594-583: A favour, or relax his efforts in producing it. A system of compelling the exchange of commodities at what is not their real relative value not only relaxes production, but leads finally to the waste and inefficiency of barter. Keynes detailed the relationship between German government deficits and inflation. In Germany the total expenditure of the Empire, the Federal States, and the Communes in 1919–20

693-649: A notable success has been the London Docklands , largely derelict and with unsatisfactory transport infrastructure thirty years ago when a zone was first established, now a financial and media powerhouse. In fact, the London situation is example of dual long-lasting special zones. The City of London was for years a special region in London, being one of the early examples of it. Despite this, after London lost its port status because of technology and rising prices,

792-498: A real physical shortage, or a relative scarcity due to factors such as taxes or bad monetary policy influencing the "cost" or availability of raw materials. This is consistent with the cost-push inflation factors in neo-Keynesian theory (above). The way this plays out is that after supply shock occurs, the economy first tries to maintain momentum. That is, consumers and businesses begin paying higher prices to maintain their level of demand. The central bank may exacerbate this by increasing

891-471: A response to US stagflation in the 1970s. It largely attributed inflation to the ending of the Bretton Woods system in 1971 and the lack of a specific price reference in the subsequent monetary policies (Keynesian and Monetarism). Supply-side economists asserted that the contraction component of stagflation resulted from an inflation-induced rise in real tax rates (see bracket creep ). Adherents to

990-414: A sharp increase in oil prices, and misguided government policies that simultaneously hinder industrial output and expand the money supply too rapidly. The stagflation of the 1970s led to a reevaluation of Keynesian economic policies and contributed to the rise of alternative economic theories, including monetarism and supply-side economics . The term, a portmanteau of stagnation and inflation ,

1089-524: A simultaneous occurrence of high inflation , stagnant economic growth , and elevated unemployment . This phenomenon challenges traditional economic theories, which previously suggested that inflation and unemployment were inversely related , as depicted by the Phillips Curve . The term stagflation , a blend of "stagnation" and "inflation," was popularized by British politician Iain Macleod in

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1188-427: Is neutral . In other words, while neoclassical and neo-Keynesian models are often seen as competing points of view, they can also be seen as two descriptions appropriate for different time horizons. Many mainstream textbooks today treat the neo-Keynesian model as a more appropriate description of the economy in the short run, when prices are " sticky ", and treat the neoclassical model as a more appropriate description of

1287-546: Is a specific type of FTZ usually set up in developing countries by their governments to promote industrial and commercial exports. According to the World Bank, "an export processing zone is an industrial estate, usually a fenced-in area of 10 to 300 hectares, that specializes in manufacturing for export. It offers firms free trade conditions and a liberal regulatory environment. Its objectives are to attract foreign investors, collaborators, and buyers who can facilitate entry into

1386-503: Is a sudden real or relative scarcity of key commodities, natural resources, or natural capital needed to produce goods and services. In this view, stagflation is thought to occur when there is an adverse supply shock (for example, a sudden increase in the price of oil or a new tax) that causes a subsequent jump in the "cost" of goods and services (often at the wholesale level). In technical terms, this results in contraction or negative shift in an economy's aggregate supply curve . In

1485-401: Is estimated at 25 milliards of marks, of which not above 10 milliards are covered by previously existing taxation. This is without allowing anything for the payment of the indemnity. In Russia, Poland, Hungary, or Austria such a thing as a budget cannot be seriously considered to exist at all. Thus the menace of inflationism described above is not merely a product of the war, of which peace begins

1584-523: Is generally attributed to Iain Macleod , a British Conservative Party politician who became Chancellor of the Exchequer in 1970. Macleod used the word in a 1965 speech to Parliament during a period of simultaneously high inflation and unemployment in the United Kingdom. Warning the House of Commons of the gravity of the situation, he said: We now have the worst of both worlds—not just inflation on

1683-593: Is normally established in a single country, although there are a few exceptions where a free zone may cross a national border, such as the Syrian/Jordanian Free Trade Zone. Free trade areas are set up between countries; for example, the Latin America Free Trade Association (LAFTA) was created in the 1960 Treaty of Montevideo by Argentina , Brazil , Chile , Mexico , Paraguay , Peru , and Uruguay ; and

1782-424: Is not caused by the fact that in the short run people are fooled by the central bank. Stagflation is the natural result of monetary pumping which weakens the pace of economic growth and at the same time raises the rate of increase of the prices of goods and services." In 1984, journalist and activist Jane Jacobs proposed the failure of major macroeconomic theories to explain stagflation was due to their focus on

1881-660: Is still in operation today. Other free zones to note are the Kandla Free Zone in India, which started in about 1960, and the Kaohsiung Export Processing Zone in Taiwan, which started in 1967. The number of worldwide free-trade zones proliferated in the late 20th century. Corporations setting up in a zone may be given a number of regulatory and fiscal incentives, such as the right to establish

1980-412: Is used as an alternative to have higher relative profit than the competition. With increasing mergers and acquisitions, the power to implement stagflation increases. Stagflation appears as a societal crisis, such as during the period of the oil crisis in the 70s and in 2007 to 2010. Inflation in stagflation, however, does not affect all firms equally. Dominant firms are able to increase their own prices at

2079-493: The 1970s stagflation in the West . It began with a large rise in oil prices, but then continued as central banks used excessively stimulative monetary policy to counteract the resulting recession, thereby causing a price/wage spiral . Increased requirements on skill (education and experience) on work force, for example because of increased technical complexity, can cause shortage on skilled employees and rising salaries for them, at

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2178-503: The Austrian School maintain that creation of new money ex nihilo benefits the creators and early recipients of the new money relative to late recipients. Money creation is not wealth creation; it merely allows early money recipients to outbid late recipients for resources, goods, and services. Since the actual producers of wealth are typically late recipients, increases in the money supply weakens wealth formation and undermines

2277-671: The North American Free Trade Agreement was established between Mexico, the United States, and Canada. In free trade areas, tariffs are only lowered between member countries. They should also be distinguished from customs unions, like the former European Economic Community, where several countries agree to unify customs regulations and eliminate customs between the union members. Free-trade zones have more recently been also called special economic zones in some countries. Special economic zones (SEZs) have been established in many countries as testing grounds for

2376-582: The Steelyard in London. The Steelyard, like other Hansa stations, was a separate walled community with its own warehouses, weighing house, chapel, counting houses , and residential quarters. In 1988, remains of the former Hanseatic trading house, once the largest medieval trading complex in Britain, were uncovered by archaeologists during maintenance work on Cannon Street Station. Shannon , Ireland ( Shannon Free Zone ), established in 1959, has claimed to be

2475-501: The business cycle ". In this discussion, Blanchard hypothesizes that the recent oil price increases could trigger another period of stagflation, although this has not yet happened (pg. 152). A purely neoclassical view of the macroeconomy rejects the idea that monetary policy can have real effects. Neoclassical macroeconomists argue that real economic quantities, like real output , employment , and unemployment , are determined by real factors only. Nominal factors like changes in

2574-662: The stagflation of the economy, the British Centre for Policy Studies and the American Heritage Foundation challenged the theory of Keynesianism which consists of a mixed economy in the private sector accompanied by government interventions and regulations. City planning stopped regulating and controlling growth, and started promoting that growth by any possible means: through tax concession, deregulation, or infrastructure incentives. By encouraging urban growth, city authorities were expecting to boost

2673-490: The 1950s and 1960s. Planning was fostered by a period of constant economic and physical growth. The economic recession of the 1970s and 1980s was compelled to transform the nature of urban planning. This shift was especially marked in the UK, when the strong capitalist economy shifted following the great recession. Britain lost its core economic motive: manufacturers. In an urban context, cities had to create growth at any cost. Due to

2772-606: The 1960s, during a period of economic distress in the United Kingdom. It gained broader recognition in the 1970s following a series of global economic shocks, particularly the 1973 oil crisis , which significantly disrupted supply chains and contributed to rising prices and slowing growth. Stagflation presents a policy dilemma , as typical measures to curb inflation —such as tightening monetary policy —can further exacerbate unemployment, while policies aimed at reducing unemployment may fuel inflation. Two main explanations for stagflation are commonly discussed: supply shocks , such as

2871-471: The 1970s and 1980s, when stagflation occurred, it became obvious that the relationship between inflation and employment levels was not necessarily stable: that is, the Phillips relationship could shift. Macroeconomists became more sceptical of Keynesian theories, and Keynesians themselves reconsidered their ideas in search of an explanation for stagflation. The explanation for the shift of the Phillips curve

2970-456: The 1970s) can transition successfully into sustainable economic growth as the zone is wound down, or whether by special pleading or inertia, breaks and incentives remain in place to stop 'capital flight'. A persistence of low-wage jobs, rapid turnover of the firms, little inward investment, or persistent subsidy to enterprise, would not indicate a successful transition. In the UK, a government-commissioned evaluation in 1987 found that from 1981–86,

3069-683: The Alternative Site Framework (ASF) should be considered. The ASF may be an appropriate option for certain Foreign-Trade Zone projects, but the decision of whether to adopt the new framework and what the configuration of the sites should be requires careful analysis and planning. Regardless of the choice to expand the FTZ project, the sites should be selected and the application drafted in such a manner as to receive swift approval while maximizing benefit to those that locate in

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3168-556: The Peace . Keynes wrote: Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. [...] Lenin

3267-530: The UAE. In these Free Zones, investors benefit from maintaining full business ownership and receiving tax exemptions. Some of the benefits of setting up business in UAE Free Zones are: Some Free Zones in UAE are: Kuwait's free trade zone (FTZ) was formally established in 1999 to expand businesses and lure the export industry. The zone was located in the western part of the commercial port of Shuwaikh . It

3366-399: The United States have recently been making use of the flexible opportunities offered by the Alternative Site Framework (ASF) program. The ASF program is designed to serve zone projects that want the flexibility to both attract users/operators to certain fixed sites but also want the ability to serve companies at other locations where the demand for FTZ services will arise in the future. FTZ 32

3465-889: The United States, the Foreign-Trade Zones Board (FTZB), established under the Foreign-Trade Zones (FTZ) Act of 1934, is led by the Secretary of Commerce and the Secretary of the Treasury . In January 2009, the Foreign-Trade Zones Board adopted an FTZ Board staff proposal to make what it called the Alternative Site Framework (ASF) as a means of designating and managing general-purpose FTZ sites through reorganization. The ASF provides Foreign-Trade Zone grantees greater flexibility to meet specific requests for zone status by utilizing

3564-967: The Volcker disinflation suggests Volcker may have trusted unemployment to self-correct and return to its natural rate within a reasonable period. Free trade zone A free-trade zone ( FTZ ) is a class of special economic zone . It is a geographic area where goods may be imported , stored, handled, manufactured, or reconfigured and re- exported under specific customs regulation and generally not subject to customs duty . Free trade zones are generally organized around major seaports , international airports , and national frontiers—areas with many geographic advantages for trade. The World Bank defines free trade zones as "small, fenced-in, duty-free areas, offering warehousing, storage, and distribution facilities for trade, transshipment , and re-export operations". Free-trade zones can also be defined as labor-intensive manufacturing centers that involve

3663-633: The Zone. Successful zone projects are generally the result of a plan developed and implemented by individuals who understand all aspects of the FTZ program. The FTZB approves the reorganization of Foreign Trade Zone (FTZ) 32 under the alternative site framework. The application submitted by its grantee, the Greater Miami Foreign Trade Zone was approved and officially ordered by the FTZB on January 8, 2013. From California to Oklahoma, North Carolina, and New York State, FTZs all across

3762-539: The benefit of pecuniary interests. Demand-pull stagflation theory explores the idea that stagflation can result exclusively from monetary shocks without any concurrent supply shocks or negative shifts in economic output potential. Demand-pull theory describes a scenario where stagflation can occur following a period of monetary policy implementations that cause inflation. This theory was first proposed in 1999 by Eduardo Loyo of Harvard University 's John F. Kennedy School of Government . Supply-side economics emerged as

3861-492: The causes of stagflation to the "determinants of productivity growth and the effects of real wages on the demand for labor". Economists offer two principal explanations for why stagflation occurs. First, stagflation can result when the economy faces a supply shock , such as a rapid increase in the price of oil . An unfavourable situation like that tends to raise prices at the same time as it slows economic growth by making production more costly and less profitable. Second,

3960-455: The conditions that most would recognise as stagflation. The term stagflation was first coined during a period of inflation and unemployment in the United Kingdom. The United Kingdom experienced an outbreak of inflation in the 1960s and 1970s. As inflation rose then, British policy makers failed to recognise the primary role of monetary policy in controlling inflation. Instead, they attempted to use non-monetary policies and devices to respond to

4059-626: The conflict, which triggered an oil embargo in October 1973 when the countries of the Organization of Arab Petroleum Exporting Countries ( OAPEC ) cut production of oil and placed an embargo on oil exports to the United States and other countries backing Israel. Money supply in the early 1970s increased at almost 15% year over year in the United States and the Consumer price index lags behind about one year or two. Britain's monetary policy

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4158-480: The controls were lifted in mid-1973 the CPI surged to 8.5%. Arguably, if there were no wage-price controls, the mini stagflation documented above would have been clearly evident before the October 1973 OPEC oil price hike. As for the direct impact of dollar depreciation on inflation, data again imply that just as higher inflation shifted up the labor supply curve and made workers demand and get higher money wages, similarly

4257-409: The costs of production. This could be caused by government policies (such as taxes) or from purely external factors such as a shortage of natural resources or an act of war. Contemporary Keynesian analyses argue that stagflation can be understood by distinguishing factors that affect aggregate demand from those that affect aggregate supply . While monetary and fiscal policy can be used to stabilise

4356-609: The created revival vision London Docklands was in fact creation of second nearby special zone; mainly populated with financial companies, that hundreds of years ago would have chosen the City, but now instead chosen Docklands, while the City is slowly converting to tourist heritage park (one of examples is the Stock Exchange Building , where the London Stock Exchange moved away, and it was converted to

4455-417: The cure. It is a continuing phenomenon of which the end is not yet in sight. While most economists believe that changes in money supply can have some real effects in the short run, neoclassical and neo-Keynesian economists tend to agree that there are no long-run effects from changing the money supply. Therefore, even economists who consider themselves neo-Keynesians usually believe that in the long run, money

4554-412: The currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance. Keynes also pointed out how government price controls discourage production. The presumption of a spurious value for the currency, by the force of law expressed in

4653-697: The development zone located near major highways, such as the Elizabeth Center and Jersey Gardens Outlet Center in the largely industrial city of Elizabeth along the New Jersey Turnpike . Among New Jersey's 565 municipalities, 27 now participate in the program. The general critique of enterprise zones is whether the system of tax breaks and easing of planning regulations (as has occurred in Asia, notably in free trade zones of Singapore and Hong Kong where Peter Hall sought inspiration in

4752-416: The domestic government pays part of the initial cost of factory setup, loosens environmental protections and rules regarding negligence and the treatment of workers , and promises not to ask payment of taxes for the next few years. When the taxation-free years are over, the corporation that set up the factory without fully assuming its costs is often able to set up operations elsewhere for less expense than

4851-639: The double-digits, inflation did come down; these interest rates were the highest long-term prime interest rates that had ever existed in modern capital markets. Volcker is often credited with having stopped at least the inflationary side of stagflation, although the American economy dipped into a recession with the unemployment rate peaking at 10.4% in February 1983. Economic recovery began in 1983. Both fiscal stimulus and money supply growth were policy at this time. A five- to six-year jump in unemployment during

4950-470: The economic crisis. Policy makers also made "inaccurate estimates of the degree of excess demand in the economy, [which] contributed significantly to the outbreak of inflation in the United Kingdom in the 1960s and 1970s." Stagflation was not limited to the United Kingdom, however. Economists have shown that stagflation was prevalent among seven major market economies from 1973 to 1982. After inflation rates began to fall in 1982, economists' focus shifted from

5049-441: The economy in the face of aggregate demand fluctuations, they are not very useful in confronting aggregate supply fluctuations. In particular, an adverse shock to aggregate supply, such as an increase in oil prices, can give rise to stagflation. Supply theories are based on the neo-Keynesian cost-push model and attribute stagflation to significant disruptions to the supply side of the supply-demand market equation, such as when there

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5148-524: The economy in the long run, when prices have sufficient time to adjust fully. Therefore, while mainstream economists today might often attribute short periods of stagflation (not more than a few years) to adverse changes in supply, they would not accept this as an explanation of very prolonged stagflation. More prolonged stagflation would be explained as the effect of inappropriate government policies: excessive regulation of product markets and labour markets leading to long-run stagnation, and excessive growth of

5247-442: The economy, reduce unemployment rates, and the progression of decay of its core cities. The enterprise zone concept evolved from a combination of theories, policies and social forces. The philosophy is most closely associated with the theory of supply side economics and the assumption that employers will respond positively to tax incentives and reduced government regulation. The enterprise zone philosophy suggests that by encouraging

5346-651: The enterprise zones had cost nearly £300 million but 2,800 firms were established in them, employing over 63,000 people. Taking local transfers into account (a notable example being the Merry Hill Shopping Centre in the West Midlands , which largely consisted of shops which had relocated from the nearby town of Dudley ), only 13,000 net jobs had been created; a possible reason why the government began to prefer urban development corporations as their main vehicle for urban renewal . However,

5445-530: The first "modern" free trade zone. The Shannon Zone was started to help the city airport adjust to a radical change in aircraft technology that permitted longer range aircraft to skip previously-required refueling stops in Shannon. It was an attempt by the Irish government to maintain employment around the airport so that the airport would continue to generate revenue for the Irish economy. It was hugely successful and

5544-578: The first Export processing zones in 1988, aiming to fight the unbalances in the country. First EPZ area in operation was located near of the Port of Pecém in Ceará . Companies in these areas are benefited from tax exemptions and incentives at the ICMS Tax (State Value-Added Tax). Some Brazilian states offer other regional incentives. Companies also can take advantage of a Foreign exchange treatment supported by

5643-547: The government can cause stagflation if it creates policies that harm industry while growing the money supply too quickly. These two things would probably have to occur simultaneously because policies that slow economic growth do not usually cause inflation, and policies that cause inflation do not usually slow economic growth. As soon as the Six-Day War started in 1967 and Israel invaded the Sinai Peninsula all

5742-506: The implementation of liberal market economy principles. SEZs are viewed as instruments to enhance the acceptability and the credibility of the transformation policies and to attract domestic and foreign investment. The change in terminology has been driven by the formation of the World Trade Organization (WTO), which prohibits members from offering certain types of fiscal incentives to promote the exports of goods, thus why

5841-971: The import of raw materials or components and the export of factory products, but this is a dated definition as more and more free-trade zones focus on service industries such as software, back-office operations, research, and financial services. Free-trade zones are referred to as "foreign-trade zones" in the United States (Foreign Trade Zones Act of 1934), where FTZs provide customs-related advantages as well as exemptions from state and local inventory taxes. In other countries, they have been called "duty-free export processing zones," "export-free zones," "export processing zones," "free export zones," "free zones," "industrial free zones," "investment promotion zones," "maquiladoras," and "special economic zones". Some were previously called "free ports". Free zones range from specific-purpose manufacturing facilities to areas where legal systems and economic regulation vary from

5940-494: The incentives to businesses to overcome economic obstacles that hinder economic growth. The United States experienced a transition similar to the UK in the 1970s. The industrial regions of New England, the northern Midwest and Mid-Atlantic were facing economic restructuring, overseas competition and profit loss. During the 1970s, it is estimated that 38 million jobs were lost due to the relocations of industries, closure, and cutbacks, and as much as 35 million were located in

6039-557: The industrial composition of the zone itself. The zone was also found to be extremely cost-effective in its job creation. Overall, the consensus on the effectiveness of enterprise zones in the US is mixed at best. Lambert and Coomes (2001) found that the Louisville, Kentucky enterprise zone mostly benefited large corporations rather than small entrepreneurs and did not benefit local neighborhoods at all, even though community re-development

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6138-489: The industrial regions. For the regeneration, it took urban planners, politicians and economists to challenge Keynesianism and introduce Enterprise zones. Urban revitalisation heavily influenced enterprise zones in the USA. Urban revitalisation consisted of innovative partnerships between different government levels and the private sector. The concept mainly consisted of accepting the end of the industrial-led economy and transforming

6237-560: The law that created the EPZ and proximity of Custom authorities with offices inside the EPZ. China has specific rules differentiating an EPZ from a FTZ. For example, 70% of goods in EPZs must be exported, but there is no such quota for FTZs. The world's first-documented free-trade zone was established on the Greek Island of Delos in 166 BCE. It lasted until about 69 BCE when the island

6336-407: The list to 44 in 2015. The Evansville, Indiana Enterprise Zone Program was established in 1984 as one of Indiana 's first five enterprise zones. A study published in 1989 by Barry M. Rubin and Margaret G. Wilder examined the 2.1 mi. area using the technique of shift-share analysis to determine whether the zone was having a measurable impact on local economic development. (The choice to use

6435-406: The main explanation for stagflation under a classical view of the economy is simply policy errors that affect both inflation and the labour market. Ironically, a very clear argument in favour of the classical explanation of stagflation was provided by Keynes himself. In 1919, John Maynard Keynes described the inflation and economic stagnation gripping Europe in his book The Economic Consequences of

6534-640: The mid-1970s, it was alleged that none of the major macroeconomic models ( Keynesian , New Classical , and monetarist ) were able to explain stagflation. Later, an explanation was provided based on the effects of adverse supply shocks on both inflation and output. According to Blanchard (2009), these adverse events were one of two components of stagflation; the other was "ideas"—which Robert Lucas , Thomas Sargent , and Robert Barro were cited as expressing as "wildly incorrect" and "fundamentally flawed" predictions (of Keynesian economics) which, they said, left stagflation to be explained by "contemporary students of

6633-522: The minor boundary modification process. The theory of the ASF is that by more closely linking the amount of FTZ-designated space to the amount of space activated with Customs and Border Protection, Zone users would have better and quicker access to benefits. When an FTZ grantee evaluates whether or not to expand its FTZ project in order to improve the ease in which the Zone may be utilized by existing companies, as well as how it attracts new prospective companies,

6732-537: The money supply leading to long-run inflation. Political economists Jonathan Nitzan and Shimshon Bichler have proposed an explanation of stagflation as part of a theory they call differential accumulation , which says firms seek to beat the average profit and capitalisation rather than maximise. According to this theory, periods of mergers and acquisitions oscillate with periods of stagflation. When mergers and acquisitions are no longer politically feasible (governments clamp down with anti-monopoly rules), stagflation

6831-585: The money supply only affect nominal variables like inflation. The neoclassical idea that nominal factors cannot have real effects is often called monetary neutrality or also the classical dichotomy . Since the neoclassical viewpoint says that real phenomena like unemployment are essentially unrelated to nominal phenomena like inflation, a neoclassical economist would offer two separate explanations for "stagnation" and "inflation". Neoclassical explanations of stagnation (low growth and high unemployment) include inefficient government regulations or high benefits for

6930-793: The money supply, by lowering interest rates for example, in an effort to combat a recession. The increased money supply props up the demand for goods and services, though demand would normally drop during a recession. In the Keynesian model, higher prices prompt increases in the supply of goods and services. However, during a supply shock (i.e., scarcity, "bottleneck" in resources, etc.), supplies do not respond as they normally would to these price pressures. So, inflation jumps and output drops, producing stagflation. Following Richard Nixon 's imposition of wage and price controls on 15 August 1971, an initial wave of cost-push shocks in commodities were blamed for causing spiraling prices. The second major shock

7029-759: The nation as the salient unit of economic analysis, rather than the city. She proposed that the key to avoiding stagflation was for a nation to focus on the development of "import-replacing cities" that would experience economic ups and downs at different times, providing overall national stability and avoiding widespread stagflation. According to Jacobs, import-replacing cities are those with developed economies that balance their own production with domestic imports—so they can respond with flexibility as economic supply and demand cycles change. While lauding her originality, clarity, and consistency, urban planning scholars have criticised Jacobs for not comparing her own ideas to those of major theorists (e.g., Adam Smith , Karl Marx ) with

7128-454: The normal provisions of the country concerned. Free zones may reduce or eliminate taxes, customs duties, and regulatory requirements for registration of business. Zones around the world often provide special exemptions from normal immigration procedures and foreign investment restrictions as well as other features. Free zones are intended to foster economic activity and employment that could occur elsewhere. An export-processing zone ( EPZ )

7227-468: The one side or stagnation on the other, but both of them together. We have a sort of "stagflation" situation. And history, in modern terms, is indeed being made. Macleod used the term again on 7 July 1970, and the media began also to use it, for example in The Economist on 15 August 1970, and Newsweek on 19 March 1973. John Maynard Keynes did not use the term, but some of his work refers to

7326-478: The production of goods, investment will improve; therefore, the supply of goods and services and the providing of job opportunities will increase accordingly. As policy mechanism, enterprise zones are proposed to stimulate economic activity in decaying areas. When compared with other areas, these areas have higher unemployment rates, lower income level, lower employment opportunities, vacant land, and decayed building and infrastructures. Enterprise zone programs provide

7425-413: The production of goods. But this is exactly what stagflation is all about, i.e., an increase in price inflation and a fall in real economic growth. Popular opinion is that stagflation is totally made up. It seems therefore that the phenomenon of stagflation is the normal outcome of loose monetary policy. This is in agreement with Phelps and Friedman (PF). Contrary to PF, however, we maintain that stagflation

7524-415: The rate of economic growth. Austrian economist Frank Shostak says: "The increase in the money supply rate of growth coupled with the slowdown in the rate of growth of goods produced is what the increase in the rate of price inflation is all about. (Note that a price is the amount of money paid for a unit of a good.) What we have here is a faster increase in price inflation and a decline in the rate of growth in

7623-400: The real factors that determine output and unemployment affect the aggregate supply curve only. The nominal factors that determine inflation affect the aggregate demand curve only. When some adverse changes in real factors are shifting the aggregate supply curve left at the same time that unwise monetary policies are shifting the aggregate demand curve right, the result is stagflation. Thus

7722-450: The regulation of prices, contains in itself, however, the seeds of final economic decay, and soon dries up the sources of ultimate supply. If a man is compelled to exchange the fruits of his labours for paper which, as experience soon teaches him, he cannot use to purchase what he requires at a price comparable to that which he has received for his own products, he will keep his produce for himself, dispose of it to his friends and neighbours as

7821-407: The resource scarcity scenario (Zinam 1982), stagflation results when economic growth is inhibited by a restricted supply of raw materials. That is, when the actual or relative supply of basic materials (fossil fuels (energy), minerals, agricultural land in production, timber, etc.) decreases and/or cannot be increased fast enough in response to rising or continuing demand. The resource shortage may be

7920-588: The role of the inner city to a service sector economy. This revitalisation of the inner city would attract young professionals to the decaying Victorian downtown neighborhoods. This would create a new economic base to the city. In New Jersey , for example, a municipality may request that the New Jersey Urban Enterprise Zone Authority, part of the New Jersey Department of Community Affairs designate part of

8019-470: The same depth and breadth they developed, as well as a lack of scholarly documentation. Despite these issues, Jacobs' work is notable for having widespread public readership and influence on decision-makers. Stagflation undermined support for the Keynesian consensus. Federal Reserve chairman Paul Volcker very sharply increased interest rates from 1979 to 1983 in what was called a " disinflationary scenario ". After U.S. prime interest rates had soared into

8118-598: The same time as uneducated work tasks have in part moved to low salary countries such as in Asia, causing high unemployment. Up to the 1960s, many Keynesian economists ignored the possibility of stagflation, because historical experience suggested that high unemployment was typically associated with low inflation, and vice versa (this relationship is called the Phillips curve ). The idea was that high demand for goods drives up prices, and also encourages firms to hire more; and likewise, high employment raises demand. However, in

8217-471: The shift-share analysis method with the larger metropolitan area as the reference region allowed Rubin & Wilder to go a step further than previous studies and exclude "external effects" that might be stimulating or depressing regional economic growth and development.) The study found that the Evansville zone did provide significant employment growth that could not be accounted for by external effects or

8316-521: The supply shock view that the 1970s stagflation was due to OPEC's quadrupling of oil prices in October 1973. Data show that its seeds were sown during the late sixties and began to be reaped in that decade. Between 1968 and 1970 unemployment rose from 3.6% to 4.9% while the CPI inflation rose from 4.7% to 5.6%. Further in the Michigan survey expected inflation rose from 3.8% to 4.9% between 1967 and 1970. The rise in expected inflation strongly supports

8415-463: The term Export Processing Zone (EPZ) is no longer used with newer zones. For example, India converted all of its EPZs to SEZs in 2000. In 1999, there were 43 million people working in about 3,000 FTZs spanning 116 countries and producing clothes , shoes , sneakers , electronics , and toys . The basic objectives of economic zones are to enhance foreign exchange earnings, develop export-oriented industries, and generate employment opportunities. In

8514-571: The tourist-luxury shopping centre), and for example car owners and parking spaces are limited, with extra payment just for "entry" , during the working week which is not endorsed by private-public owning of Docklands, which also approves new buildings containing itself lot of working places and vehicle parking spaces. In 2012, the Conservative-Lib Dem coalition government designated 24 new enterprise zones in England, and then extended

8613-411: The unemployed that give people less incentive to look for jobs. Another neoclassical explanation of stagnation is given by real business cycle theory , in which any decrease in labour productivity makes it efficient to work less. The main neoclassical explanation of inflation is very simple: it happens when the monetary authorities increase the money supply too much. In the neoclassical viewpoint,

8712-499: The view that Expected Augmented Phillips Curve (EAPC) can explain the early, mild stagflation. Although the weakening economy was putting some downward pressure on inflation overall inflation rose in accordance with EAPC, as expected inflation kept rising. The stagflation became more severe in the early 1970s but was suppressed by the price controls and wage freeze imposed by President Nixon starting in August 1971 and through 1972. But when

8811-973: The way down to the Suez Canal , the Egyptian President Gamal Abdel Nasser , who was aligning with the Soviet Union , closed down the Suez Canal for eight years . Oil through the Suez Canal from the Middle East to Europe had to be rerouted around the Continent of Africa . Egypt then tried to cross the Suez Canal and take back the Sinai Peninsula in the Yom Kippur War in late 1973. Richard Nixon supported funding Israel with $ 2.2 billion over

8910-889: The world market for some of the economy's industrial goods, thus generating employment and foreign exchange". Most FTZs are located in developing countries ; Brazil , Colombia , India , Indonesia , El Salvador , China , the Philippines , Malaysia , Bangladesh , Nigeria , Pakistan , Mexico , the Dominican Republic , Costa Rica , Honduras , Guatemala , Kenya , Sri Lanka , Mauritius , and Madagascar all have EPZ programs. In 1997, 93 countries had set up export processing zones, employing 22.5 million people, and five years later, in 2003, EPZs in 116 countries employed 43 million people. In Brazil, 25 Export-Processing Zones have been authorized in 17 states, and 19 of them have been implemented. Brazilian government launched

9009-409: Was a goal. More importantly, in a book that reviewed most major enterprise zone studies done in the 1980s and 1990s as well as conducting its own original work, Peters and Fisher (2002) consider most state and local enterprise zone programs to have come up short in achieving their goals and objectives. Stagflation Heterodox Stagflation refers to an economic condition characterized by

9108-487: Was a severe criticism of early Keynesian theories, it was gradually accepted by most Keynesians, and has been incorporated into New Keynesian economic models. Neo-Keynesian theory distinguished two distinct kinds of inflation: demand-pull (caused by shifts of the aggregate demand curve) and cost-push (caused by shifts of the aggregate supply curve). Stagflation, in this view, is caused by cost-push inflation . Cost-push inflation occurs when some force or condition increases

9207-458: Was also dovish causing excess demand. In the mid 1970s the Bretton Woods system was failing and countries fixed exchange rate system between currencies started to float , and the Gold standard where currencies were pegged to gold was abandoned. The price of gold and oil became very volatile after many years of steadiness. There is evidence supporting the second explanation against

9306-414: Was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose. Keynes explicitly pointed out the relationship between governments printing money and inflation. The inflationism of

9405-555: Was founded in 1979 and processes over $ 1 billion in goods with products from more than 65 countries and exported to more than 75 countries worldwide with speed and efficiency. According to the official order from the FTZB, FTZ 32 existing site 1, Miami Free Zone, will be classified as a magnet site. Due to growing business opportunities in the United Arab Emirates (UAE), the UAE government has introduced 'Free Zones' to make it easier for foreigners to invest and operate in

9504-541: Was initially provided by the monetarist economist Milton Friedman , and also by Edmund Phelps . Both argued that when workers and firms begin to expect more inflation, the Phillips curve shifts up (meaning that more inflation occurs at any given level of unemployment). In particular, they suggested that if inflation lasted for several years, workers and firms would start to take it into account during wage negotiations, causing workers' wages and firms' costs to rise more quickly, thus further increasing inflation. While this idea

9603-621: Was overrun by pirates. The Romans had many civitas libera , or free cities, some of which could coin money, establish their own laws, and not pay an annual tribute to the Roman Emperor . These continued through at least the first millennium CE. In the 12th century, the Hanseatic League began operating in Northern Europe and established trading colonies throughout Europe. These Free Trade Zones included Hamburg and

9702-463: Was the 1973 oil crisis , when the Organization of Petroleum Exporting Countries ( OPEC ) constrained the worldwide supply of oil. Both events, combined with the overall energy shortage that characterised the 1970s, resulted in actual or relative scarcity of raw materials. The price controls resulted in shortages at the point of purchase, causing, for example, queues of consumers at fuelling stations and increased production costs for industry. Through

9801-501: Was the only free trade zone in the country. In 2019, the Council of Ministers cancelled the free-zone, leaving Kuwait without a special economic zone. Aberdeen Group research published in 2013 noted that best-in-class companies make strategic use of free-trade zones as a means of reducing inbound trade costs, shortening import timescales, and optimising the balance of their corporate sourcing and operational activities. Sometimes

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