NAME: Poche, Jemina A.

COURSE: Bachelor of Science in Accountancy

SUBJECT: Economic Development
PROFESSOR: Mr. Edgar M. Chavez

REACTION PAPER
TITLE: The Role of Law in Economic Development: To Develop a Special Economic
Zone in Order to Build a national and Regional Economy
https://www.emerald.com/insight/content/doi/10.1108/978-1-78756-793-1-
00012/full/html#:~:text=Law%20plays%20an%20important%20role,support%20is
%20hard%20to%20get.

I. SUMMARY:

The Role of Law in Economic development has mainly focused on

establishing a Special Economic Zone (SEZ) emphasizing the importance of legal
certainty in enticing investors, as well as in developing the environment that would
help the economy. However, it also discusses the conflict faced in advancing the
economy of Sei Mangkei SEZ, including the unfinished infrastructure and
hindrances to the bureaucracy.

Even though laws and regulations support the SEZ development in Sei
Mangkei, the authors have discovered that legal uncertainty was yet to be fully
implemented for the development. 1It is stated that Sei Mangkei SEZ has been
operating since 27 January 2015. However, the necessary infrastructure to support
investments within and outside the sector has not been fully developed, resulting
in tenants being unable to function effectively. According to the developer of Sei
Mangkei, it was necessary to provide certain incentives from the regional
government such as reduced or waived property taxes and duties on land and
buildings, to attract investors.
1
Ginting, B., Sembiring, R., Siregar, M., & Abduh, A. (2018). The role of law in economic Development: to develop a
special economic zone to build a national and regional economy. In Emerald reach proceedings series (pp. 209–214).
https://doi.org/10.1108/978-1-78756-793-1-00012

Reaction Paper
1|Page
 Complete and total legal compliance has not been ensured by SEZ
development or management assurance. The Sei Mangkei SEZ development
experience demonstrates that legal certainty has not been fully realized.
Furthermore, the problem of legal certainty has not yet been fully addressed about
the amenities and financial incentives. The legal incentive that was promised has
not been acknowledged, and the management is convoluted and bureaucratic.

To overcome this situation the author suggested integrating the said

agencies of the government as well as the ruling institutions. As mentioned in the
paper, the Central Government, the Provincial Government, the Regional
Government, and the Management Institution are the said government agencies
that should aid the legal uncertainty of the Sei Mangkei SEZ. The paper points out
the significance of uniting the power of these government agencies in order to
finish the project regarding the infrastructure and also to harmonize the policies
regarding SEZ management.

II. ANALYSIS:

A Special Economic Zone (SEZ) in Sei Mangkei, was established as the

government expects that this zone would be the way to increase the economic
growth of the country, Indonesia. Wherein here would happen the exporting.
2
Pandamdari (2023) also stated that the Special Economic Zone (SEZ) is a zone
under the authority of the Republic of Indonesia’s Unitary State which is in charge
of the execution of the economic obligations and the receipt of certain amenities.
However, it was discovered that it had not been realized the legal certainty.

3
Since SEZs often involve a “special” legal and regulatory regime including
incentive regimes and may be appropriate in case the main constraints are related
to legal and regulatory issues that affect the business environment besides other
constraints, such as land and infrastructures. To increase government
accountability, administrative transparency in a SEZ is essential. The governance

2
Pandamdari, E. (2023). The legal certainty of right to manage the Mandalika Special Economic Zone. In Proceedings
of the 3rd International Conference on Business Law and Local Wisdom in Tourism (ICBLT 2022) (pp. 891–897).
https://doi.org/10.2991/978-2-494069-93-0_103

3
Zeng, D. Z. (2021). The dos and don’ts of special economic zones. https://doi.org/10.1596/36663
Reaction Paper
2|Page
 structure, authorities, and modes of operation of the Zone must all be clearly
understood, as this unavoidably should include details on reporting and auditing
procedures.

However, despite achieving the acceptance of development from the legal

works, complete legal certainty has not been achieved in the development of SEZs.
4
According to Lorizio and Gurrieri (2014), the significance of legal systems in
influencing economic performance has received increasing attention in recent
years, and academic and institutional frameworks generally recognize the
importance of rules and their relevance for economic progress. In the context of
Indonesia's development of Special Economic Zones (SEZs), the article highlights
the critical role that legal certainty plays in economic growth. To draw investments
and promote economic growth, legal certainty gives investors assurance and
predictability. 5As stated by Azmi & Associates (2023) the assurance offered by the
legal sector boosts trust and encourages enterprises to take on the risk of
participating in a range of economic hazards.

The article also pointed out and identified several obstacles to the
establishment of Special Economic Zones (SEZ), with a focus in particular on the Sei
Mangkei SEZ study. These challenges include unfinished infrastructure, including
port facilities, transportation linkages, waste management, and energy supply.
These shortcomings make the Special Economic Zone (SEZ) less functional and less
appealing to prospective investors. Complete and total legal certainty has not been
ensured by SEZ development or management. The process of creating the Sei
Mangkei Special Economic Zone has demonstrated that legal certainty has not
been fully achieved. The facilities and investment incentives have not fully
addressed the issue of legal transparency. The law's stated incentive has not
materialized, and the process is convoluted and excessively complicated. Resulting
in unmoved growth in the economy.

The study has also highlighted how crucial it is for management organizations
and government agencies at all levels to work together to address the difficulties

4
Lorizio, M., & Gurrieri, A. R. (2014). Efficiency of justice and economic systems. Procedia. Economics and Finance,
17, 104–112. https://doi.org/10.1016/s2212-5671(14)00884-3
5
Azmi & Associates. (2023, April 12). Legal profession as strategic industry for economic growth and prosperity.
https://www.linkedin.com/pulse/legal-profession-strategic-industry-economic-growth

Reaction Paper
3|Page
 associated with SEZ growth. It implies that to improve the operation and appeal of
Special Economic Zones (SEZs), coordination between management institutions
and the federal, provincial, and local governments is necessary to finish
infrastructure projects and align laws.

Having proper governance over the SEZ development is a must as it grasps

the rope to the tower of success. SEZ growth needs strong institutional capability,
which may be challenging and costly in a highly regulated environment with
frequent government failures. 6 Tun and Tun (2023) stated that it is important that
improved governance is implemented. A SEZ's day-to-day operations, like any
other huge business venture, benefit from the highest level of transparency
available. This implies that all deals, rules, and interactions with the SEZ should be
made public.

Based on the findings, the report makes several policy recommendations.

These include finishing unfinished infrastructure projects, unifying SEZ
management regulations, and offering incentives to attract investors. The report
underlines the importance of systematic efforts to remove bureaucratic
impediments and guarantee that SEZ laws are effectively implemented.

Inconsistent legislative changes might result in economic inefficiency when

societal changes become too severe. It has been stated that established rules must
be surrendered to accommodate change.7 The most significant aspect of the legal
change from the standpoint of dynamic efficiency is that it proves to be more
efficient than the current law in terms of predicted net benefits, which are benefits
less damages paid to aggrieved parties and litigants. Wherein, the SEZ
development should be implemented.

The article enhances knowledge of the importance of law in economic growth

, particularly as it relates to Indonesia's Special Economic Zones (SEZs).
It gives useful advice for stakeholders and legislators interested in fostering

6
Tun, T., & Tun, T. (2023, December 7). Special Economic Zone a test for better governance in Myanmar | East Asia
Forum. East Asia Forum. https://eastasiaforum.org/2017/06/15/special-economic-zone-a-test-for-better-governance-in-
myanmar/
7
Portuese, A., Gough, O., & Tanega, J. (2014). The principle of legal certainty as a principle of economic efficiency.
European Journal of Law and Economics, 44(1), 131–156. https://doi.org/10.1007/s10657-014-9435-2

Reaction Paper
4|Page
 economic growth through SEZ efforts, as well as insights into the prospects and
difficulties related to the Special Economic Zone (SEZ) development.

III. MY REACTIONS:

“Vertrauensschutz” (Ver-trau-ens-schutz) is a word in Germany that

means “protection of trust,” that is how I anticipate the law to us, it shall
have the assertion to whoever needs it. From a layman’s perspective, the law
must protect and assure. And that is how the law stands in the development
of our economy.

In the article, entitled “The Role of Law in Economic Development: To

Develop a Special Economic Zone in Order to Build a National and Regional
Economy”, the objectives of the development for this particular zone were
stated clearly to attract investors and financiers. However, investors wouldn’t
endow, for the reason that the Special Economic Zone doesn’t have approval
to the law. In this precise matter similarly distinguished as lack of legal
certainty.

Legal Certainty is predominant in economic development, as well as in

the Special Economic Zone. As stated in Lumen, Learnings 8 laws must be
transparent, publicly accessible, and easily understood by all members of
society. It also should be fair and applied consistently to ensure equal
treatment for everyone. This ensures that individuals and businesses can
confidently engage in economic activities without fear of arbitrary regulations
or legal uncertainties. As legal certainty regarding property rights facilitates
contractual agreements between parties, enabling efficient transactions and
the allocation of resources. When individuals and businesses can rely on the
enforceability of contracts, investors would be more willing to engage in
trade and investment activities, leading to increased productivity and
economic prosperity.

8
Lumen Learning. (n.d.). Reading: Rule of Law and Economic Growth | Macroeconomics.

https://courses.lumenlearning.com/suny-macroeconomics/chapter/rule-of-law-and-economic-growth/

Reaction Paper
5|Page
 It appears evident that law holds significant sway over all aspects of
business, playing an important role in advancing economic development. The
establishment of Special Economic Zones (SEZs) highlights the importance of
legal certainty in enabling economic growth. However, it is concerning that
SEZs lack the necessary legal basis to ensure such certainty. And there must
be a reason why the Special Economic Zone, couldn’t have the legal certainty
it should possess. The role of law in economic development extends beyond
mere assertion and protection. A strong legal system serves as a basis for
advancing innovation and entrepreneurship. Clear and enforceable
regulations enable businesses to operate with confidence, encouraging them
to take risks and explore new opportunities.

Reaction Paper
6|Page
REFERENCE LISTS:

Azmi & Associates. (2023, April 12). Legal profession as strategic industry for economic growth

and prosperity. https://www.linkedin.com/pulse/legal-profession-strategic-industry-

economic-growth

Ginting, B., Sembiring, R., Siregar, M., & Abduh, A. (2018). The role of law in economic

Development: to develop a special economic zone in order to build a national and regional

economy. In Emerald reach proceedings series (pp. 209–214). https://doi.org/10.1108/978-

1-78756-793-1-00012

Lorizio, M., & Gurrieri, A. R. (2014). Efficiency of justice and economic systems. Procedia.

Economics and Finance, 17, 104–112. https://doi.org/10.1016/s2212-5671(14)00884-3

Lumen Learning. (n.d.). Reading: Rule of Law and Economic Growth | Macroeconomics.

https://courses.lumenlearning.com/suny-macroeconomics/chapter/rule-of-law-and-

economic-growth/

Pandamdari, E. (2023). The legal certainty of right to manage the Mandalika Special Economic

Zone. In Proceedings of the 3rd International Conference on Business Law and Local

Wisdom in Tourism (ICBLT 2022) (pp. 891–897). https://doi.org/10.2991/978-2-494069-

93-0_103

Portuese, A., Gough, O., & Tanega, J. (2014). The principle of legal certainty as a principle of

economic efficiency. European Journal of Law and Economics, 44(1), 131–156.

https://doi.org/10.1007/s10657-014-9435-2

The International Lawyer | Law Journals | Southern Methodist University. (n.d.).

https://scholar.smu.edu/til/

Reaction Paper
7|Page
Tun, T., & Tun, T. (2023, December 7). Special Economic Zone a test for better governance in

Myanmar | East Asia Forum. East Asia Forum.

https://eastasiaforum.org/2017/06/15/special-economic-zone-a-test-for-better-governance-

in-myanmar/

Zeng, D. Z. (2021). The dos and don’ts of special economic zones. https://doi.org/10.1596/36663

Reaction Paper
8|Page