This paper studies the local economic impact of the Free Economic Zones (FEZs) program established in Colombia between 2005-2018. Based on a novel data set that combines georefer-enced data on FEZs, municipalities, and household characteristics, I measure the spatial effects of the creation of these zones on labor market outcomes, focusing on informality. Results show that the FEZs establishment significantly increases informality, with positive spillovers to the nearby regions, decreasing with distance. This increase is mostly driven by workers shifting from the formal to the informal sector. I develop a spatial structural model with informality, internal trade, and labor mobility to rationalize these findings.