Special Economic Zones and the Political Economy of Place-Based Policies

Abstract

Special economic zones (SEZs) have a long pedigree in the history of regional policy, given that they deal explicitly with a strictly bounded geographical area artificially delineated from the rest of a country. As a distinct region with separate economic policies for the country surrounding it, SEZs both reflect the institutional nature of the country in which they reside but also are often used as an area for institutional experimentation. Tracing the evolution of SEZs in the modern era beginning in China and working through modern variants of the SEZ concept, this chapter explores special economic zones and the (lack of) animating theories behind their existence, drawing particularly on new economic geography and advances in regional science. More importantly, this chapter explores the functioning of economic relationships within an SEZ and its arrangement of institutions in a small geographic space, trying to understand the relationship of SEZs with the countries which birthed them. Are SEZs a substitute for organically generated institutions of growth, including networks/clusters and agglomeration? Do SEZs succeed in increasing growth or fostering the environment for the building blocks of growth, i.e. human capital, technological progress, or capital accumulation? And do SEZs succeed in forging broader institutional change for other regions of a country? Drawing on classic and recent scholarship in this area, this chapter illuminates the promises and pitfalls of SEZs for regional policy.