Special economic zones and liberalization avalanches

Co-authored with Vlad Tarko

Journal of Entrepreneurship and Public Policy, Vol. 10 No. 1, pp. 120-139.

Abstract: Purpose: The purpose of this study is to show under what conditions a special economic zone will succeed at spurring development and at sparking broader liberalization. Design/methodology/approach – The authors use a combination of formal modeling and case studies.

Findings: Most special economic zones fail because of rent-seeking. Successful zones create positive economic and political externalities to other regions. Credible reforms are associated with turning the opposition to the zones into supporters, as a consequence to the positive externalities.

Originality/value: The authors add heterogeneity to the model of political elite dynamics, which leads to significant enhancements of the model and removes the pro-centralization bias of the Blanchard and Shleifer’s (2001) model. They also criticize Weingast’s federalism model as applied to China. Success of China is explained by a different mechanism, which we put forth in this paper.

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More from me

This paper presents export processing zones (EPZs) as a rent-seeking tool with the appearance of a development policy. My model indicates that EPZs do not benefit an economy via backward linkages but through marginal improvements to a country’s trade regime.

This article explores the benefits and downsides of special economic zones, and analyzes their economic and political impact on the United States. It argues that, though widely implemented in the country, the zones have likely done more harm than good for the United States.