Reassessing the Impact of Labor and Innovation on SEZ Output: An Econometric Approach

Abstract

This study reassesses the determinants of production output in Special Economic Zones (SEZs), focusing on the roles of labor and innovation. Using annual data from 2010 to 2025 of Qashqadarya,  the analysis applies Ordinary Least Squares (OLS) regression, including both linear and log-linear specifications. Initial results indicate a high explanatory power, with R² exceeding 0.96, suggesting strong relationships between variables. However, further diagnostic testing reveals severe multicollinearity among independent variables and the presence of strong time trends. After refining the model and applying a log-linear specification, labor remains a statistically significant determinant of output, while innovation loses significance when controlling for time effects. This suggests that the apparent influence of innovation may be driven by shared upward trends rather than a direct causal relationship. The findings highlight the importance of rigorous diagnostic testing in econometric modeling, demonstrating that high R² values can be misleading. The study concludes that careful model specification is essential to avoid incorrect economic interpretations.