Since the mid 1960s, many less developed countries (LDCs) have initiated special policies designed to stimulate exports of non-traditional manufactured goods, one of which involves the establishment of export processing zones (EPZs). This study focusses upon the economic benefits and costs of establishing such zones with the frame of reference being the economic welfare of the citizens of the country establishing the zone. This study begins with some elaboration of the footloose character of the EPZ firms and its implications for understanding them. It further provides a brief description of the incentive package and other facilities provided in the "typical" EPZ and describes the economic performance of EPZs in four Asian countries: Indonesia, Korea, Malaysia and the Philippines. The report introduces a simple conceptual framework, the "enclave model," within which the benefits and costs of an EPZ can be analyzed, and discusses the various components of such an analysis. This model is then applied presenting the results of detailed benefit-cost analyses of the above four EPZs. Finally, the study concludes by discussing the relationship between EPZs and trade policy in general.