Qafqaz University

Economics and Administration Faculty

Authors: Assoc. Prof. Dr. Mayis Azizov, email: mezizov@qu.edu.az,

Shahriyar Aliyev, email: seeliyev@qu.edu.az

The Importance of Industrial Parks in

Economic Development
Xülasə
Qloballaşama prosesiylə birlikdə ölkələrin inkişaf səviyyəsindəki bərabərsizliklər muşahidə olunmaya
başlandı. Bəzi ölkələr bu prosesin avantajlarından istifadə edərək daha da inkişaf etdilər, bəzi ölkələr isə bu
prosesdən iqtisadi olarak inkişaf etmiş ölkələr qədər istifadə edəbilmədilər. Bu baxımdan qloballaşmanın ölkə
iqtisadiyatlarına təsiri müzakirə mövzusuna çevrildi. İqtisadiyatın əsas sektörü olan sənaye və bu sektörün də
inkişafında xüsusi əhəmiyyətə malik olan sənaye bölgələri aktual mövzulardandır. Araşdırmada sənayə bölgələrinin
(Industrial Park) iqitisadi inkişafa təsirini, bu baxımdan sənaye və sənayeləşmə , sənaye bölgələrinin tarihsəl prosesi,
xüsusiyətləri, sənaye bölgələrinin hədəfləri , əhəmiyyəti , dünyada sənaye bölgələri nümünələri və ölkəmizdə
sənayeləşmədə bunun əhəmiyyəti incələməyə çalışıldı.

Açar sözlər: Qloballaşma, İqtisadi inkişaf, Sənaye, Sənaye bölgələri.

Abstract
Besides having globalization process, the development inequality among countries occurred more
significantly. Some countries have effectively benefited from the globalization process, but some could not use the
advantages like the developed countries. Thus, the impact of the globalization process on the countries’ economy
started to be the debating topic. The one of the major catalyst sector of economy is industry, and the further
important field in industry sector is industrial zones, that have become recent actual topics in economy. In this paper,
the impacts of Industrial Parks on economic development, the historical development of industrial parks,
characteristics and importance have been analyzed, by reviewing the international experience and possible
significance on Azerbaijan’s industrialization process.

Keywords: Globalization, Industrial Parks, Industry, Economic Development.

 Introduction
The imbalances and inequalities of Globalization Process have become the debating topic in
recent years. In order to reduce these imbalances, there have been several investigations and
measures took place. The international and regional economic organizations thinking to be
reduction instrument for the problems that have been occurred due to the globalization. This is
an obvious trend that, these international and regional organizations have always plausible
influences on the economies. In order to enhance the economic development, the infrastructure
in industrial, agricultural and service sectors has to be completed. Nowadays, the main actors in
economic development are industrial and service sectors, thus, industrial sector is essential in
building the economic development strategy. So, Industrial Parks in this prospective, have to be
investigated and discussed possible outcomes for the economic development.

1. The Concept of Industry and Industrialization

When we say industry, we generally perceive it like diversification of raw materials to the
final goods. Briefly to express, by using capital and labor from the production functions,
diversification from raw materials and intermediate goods to final goods, which simply derives
manufacturing, or in broad sense, the production of goods and services organized by
entrepreneur that brings profit, could be the definition for the term industry [1. p.205].
Furthermore, industry as a concept in brief could be named as production industry, or in broad
it covers mining and energy sectors [2. p.344]. The Australian economist Colin Clark argues
that, having industrialization, is development of agricultural and service with the same level as
in industry, by promoting strong physical capital, also by strengthening the research and
development of these technological sources to more productive steps. Where nowadays when
we say developed economies, we perceive fruitfully industrialized economies, the yields that
industrialization is the main indicator for the economic development of the country [3. p.67].

The development of countries economies is the same meaning with the development of
industrialization sector. The industrializations means, the enhancement of the weight of
industry sector. But, industrialization does not necessarily mean the augmentation of
proportion of the industrial goods in the total production of final goods. Having the increase of
industrial goods in total production, the enhancement of the industrial goods in the export
goods, also the development in the level of the physical capital, technology, and development of
the industrial production and its utility, give the proper definition for the term of
industrialization [4. p.181].
 2. Industrial Parks and Historical Development
Being far away from the Heavy Industry and integration facilities, Industrial Parks
(IP) contains the small and middle size manufacturing unities that have different and
complying production procedures in special closed zones. IPs have common social,
technical and residential services. The most important issue here is, these services and
promotions have been harmonized and adjusted for the same goal. The residential life
doomed to be arranged for the healthier and proper urbanization facilities [5. p.1].
There are many definitions and explanations for the concept if industrial parks.
According to the United Nations definition, “Industrial Parks are, the small and middle
size organizations that have integrated business and production, with benefiting from
the common infrastructure services, that have allocated in standard fabric buildings” [6.
P.1].

In the other argument, IPs are the fabric allocations under economic measurement
where, transportation, water, canalization, electric, banking, canteen, medical aid and
other services are given in the same restrained zone [7. p.2]. The other interesting
definition is; “Excepting Heavy Industrial Complexes(Zones), but small and middle
sized organizations, situated in harmonized and in complementary production process,
with limited location area and common production process planning” have been
explained [8. p.62].

IPs’ first implementations started by private sector in order to get profit. But after
the World War II, IPs have been invested and constructed by the governments, and
intended to maximize and develop small and middle size businesses in least developed
countries [7. p.2].

The first IPs invested in England in 1896, near the Manchester city in the so called
Tradford Park. This trend followed by United States in 1899, and by Italy in 1904. The
implementation and improvement of IPs in the developing countries have been
observed after 1950s. Private Industrial Zones and Technoparks have come about in the
last two decades, that reflects the global competition that brought by the foreign direct
investments.

Technoparks have established by the private companies for the R&D supporting
intentions. The main factor that approved IPs in global arena acceptable is, it has been
found as an important method of industrialization. As industrialization found the major
negative factor that opens big gap between development levels among developed and
developing countries. In this perspective, IPs by its equal and fair added value
distribution decrease these problems to the minimum level. Also IPs has been perceived
as the main force in the urbanization, started to be one of the governmental policies [9.
p.1].

3. Characteristics of Industrial Parks

We can state the main characteristics of IP’s like:

- The institutions in IPs are either complementary in production process or

producing in the same line.
- The institutions here are purposed for production and they have limited size:
small or middle sized.
- Accumulated in a certain place and contains clustered institutions,
- Having supporting local, administrational and private institutions in the clusters
by networking [10. p.209].

The other transportation, water, electrical, gas and canalization services is common. The
use of the infrastructural services with common discipline, helps to avoid
environmental pollutions and for the appropriate regional planning. Furthermore, the
deal with infrastructural issues is completely related to the administration of IPs, that
increases the profitability and utility of clusters.

4. The Purposes in Implementation of IPs.

Holding the main purpose of IPs effective allocation, it is also a development
instrument. Where, IPs are the fruits of the planned, organized and systemic approach.
That even for entrepreneurs, IPs offers, organized and productive areas, that is
profitable for beginners. In this sense, we can characterize the purposes of IPs as
following [11. p.14]:

- The promotion the appropriate environment for the entrepreneurs,

- Besides keeping strong and effective infrastructure, institutions benefits from the
positive externalities of IPs, which enhances their competitiveness and profits,
 - Faster industrialization and its quick influence around the country,
- To avoid the uncontrolled urbanization,
- Hold the distribution of economic development sustainable and equal over the
regions of the respective country,
- Reduction of immigration process, simply saying decreasing in the rate of
migration to the big cities,
- Promote Standardization,

IPs give incentives for the entrepreneurs by reducing the challenges of where and how
to produce, in other words, entrepreneurs easily and fast can invest and enter to the
market with minimal biases.

5. The Importance of the IPs and its Functions

In the past century, IPs has been established for the development of
industrialization, having increasing the productivity, utility and quality of the goods.
IPs recognized as a method of cost-alleviation process in the industrialization process.
In most of the developed countries, IPs has been organized for the transformation of
population from the crowded cities to the rural and accurate areas, as an instrument of
public policy [12. p.311]. We definitely know that, allocation of industries within or
even around the cities yields to very significantly negative externalities like, air and
environmental pollution, unsystematic city distribution and allocation and the difficulty
with the transportations. Thus, the establishment of IPs has become inevitable for the
governments that would induce industries to facilitate the living standards in urban
areas [13. p.6]. Besides its environmental benefits, IPs also decreases the transportation
and business expenditures by promoting easy and productive atmosphere. Where, it is
the proper way to produce cheap and effective goods, providing the economies of scale
[14. p.2]. In the other hand, one of the main withdrawers are entrepreneurs, using the
mobilites that provided by IPs, giving them opportunity to invest and produce more
effectively, as the communal and energy expenses decreases the production prices, that
brings to lower prices and effective competition [12. p.11].
In developing countries, the necessity for the IPs is rather important and beneficial
than in developed ones. As the clusters in IPs are small and middle sized institutions,
the importance and productivity of these businesses are more efficient than in
developed. Because, the institutions in developed countries are large and could provide
these functions within the institutions themselves, and small- middle sized businesses
are not so much productive than large ones, thus, the effectiveness of IPs remarkably
beneficial for developing countries. In this case, we can derive that IPs promote huge
incentives for small and middle businesses in order to invest and enlarge their
productivity and profits [13. p.15].
The one important issue for IPs is the appropriation the places that are not eligible
for agricultural purposes. One possible negative externality of IPs is its damage for
suitable lands that are opportunity for agriculture sector, for that reason, in the
construction plans of IPs this harm has to be taken into the consideration. As in
construction of IPs the habitation for the employees is the case, so in order to meet
healthy and safe conditions for habitants, the planning and structuring of IPs have to be
toward above standards [16. p.12]
Eventually, IPs showed significant regional development in all locations where
they have constructed. In a long trend, it has been witnessed that IPs revived the
stagnation in the regions by accumulating and increasing the employment and
promoting balanced economic growth [17. p.203].

6. The Global Implementations of IPs.

There are many implications of IPs that could be easily observed in United
Kingdom from Europe, in United States from America and in Malaysia and Singapore
from Asia, where IPs have important role in their economic growth and development
[5. pp.48-57].
IPs in United Kingdom: In UK the IPs are mainly called “Industrial Estates”. UK’s
government has supported the investments to the IPs, where it would reduce the
unemployment and would revive the economy in these areas, that apparently will open the
gates for the economic growth. In the first years, the goal of IPs was oriented to get profit, but
after World War II it has become as an instrument for economic strategy. The first
implementations of IPs, is possible to see near the city of Manchester. But, it has gained its
importance after 1959s, where IPs started to control under the governmental regulations and
rules. Here, private sector has its priority. The aims could be listed in 4 main headings:

- Shifting industrial zones to less developed areas,

- Using IPs as a main instrument in coping with unemployment,
- Giving incentives for shifting the IPs to the non-industrialized regions, especially
transforming from the industrialized and big cities,
- Application the urbanization and industrialization for the undeveloped areas in planned
and systematic format.
 IPs in United States: But in comparing with UK, “Industrial Parks” is the name that have
been perceived in US. As in its other economic fields, the IPs in US established under the market
mechanism regulations. In the establishment of these zones, real estate trader firms, railway and
airway companies, and land owners are main entrepreneurs. In the large sized industry IPs, the
controlling and monitoring of IPs is running by the public agents. The implementations of IPs
fostered after World War II, and have main four goal:

- Providing certain areas divided into sub-parcels, introducing to the industrial

institutions,
- The investments in the big cities would bring to higher costs due to the higher rents, by
shifting IPs to rural areas, the aim is to have lower-cost production,
- The use of more productive areas, where the raw materials and other opportunities are
mobile for the industries, that they can withdraw,
- Using these IPs for the future development purposes as a strategic instrument.

IPs in Malaysia: Since 1960s, the 78% of overall industry has been occupied by IPs,
which is the significant rate for IPs investments, that, was the main policy in the development
and improvement of industrialization. Also, the areas where the IPs would constructed have
been categorized and systematically adjusted. The same above mentioned purposes were
among the establishment goals of IPs in Malaysia.

The main aim of IPs in Malaysia is to have export-oriented growth, by stimulating and
motivating the exporting. The classification of IPs in Malaysia is following:

- Having 222 economic and free trade zones, supporting by port and local
administrations,
- There 13 export led industrial zones, where 80% of their production is exporting,
- To meet the technologic knowledge and R&D necessities of industries, there are 4
private industrial parks functioning.

IPs in Indonesia: The promotion of IPs in Indonesia has significant role, where IPs has
been established for exporting intentions by having low labor costs and higher technology.
Although, the establishment of IPs began in 1970s, the integration of private sector to the IPs
started in 1989. There are 4 different regions exist: National private company, Foreign
investment joint entrepreneurs, Businesses under the governmental property and Local firms.

The allocation of IPs is strictly distributed by local and central administration, namely,
suitable lands for agriculture has not been touched, and organized according to systemic scale.
According to 2002 data, there are 185 IPs functioning in 17 different geographical regions
Indonesia. In addition, there are 46 IPs that are under the property of government. The 80% of
these IPs are situated in between West Java Region and Jakarta city, where 85% of them are
private property. The 15% of total industrial production coming from IPs, and the weight of
Japanese and Korean investors is significant. The majority of production in IPs are:
manufacturing, paper and other heavy industry businesses. There are several discounts and
many infrastructural services that provided for investors in IPs as, healthcare, security, offices,
conference halls, telecommunication and private transport services.

As seen from the experiences above, the implications of IPs in different countries servicing
to the one goal, to increase the production and economic growth, by reducing costs and giving
incentives for entrepreneurs to invest. The establishment of IPs in developing countries, mostly
oriented for export enhancing plans. In the implementation of IPs in various countries has to be
investigated and well programmed. The one successful experience in country could not be the
prerequisite for another, the economic, geographic and financial opportunities and conditions
has to be taken into the consideration in the establishment of IPs [17. pp.91-102].

Conclusion
After gaining the independence since 1990, there have been several economic
developments observed in the Azerbaijan. In the first years of independence, the war with
Armenia stagnated the economic reforms. But, after the end of the war, there have been various
economic reforms realized, especially in oil and gas sector, which occupies very significant
portion in GDP. As we know that, industry is one of the inevitable and significant role in
economic growth and development. In this sense, 2014, has been declared as a year of industry.
The establishment of New IPs has been the topic of discussion for last 1-2 years.

The investment, geographical and economic opportunities are relevant in Azerbaijan in

order to develop the IPs. Azerbaijan has very strong infrastructure to invest and develop its
industry sector, which would avoid the country to face Dutch Disease. So, there is a great hope
that Azerbaijan will have stronger industry sector by investing and establishing the Industrial
Parks within the country.
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