Why No Chinese Miracle in Africa? Special Economic Zones and Liberalization Avalanches

27 Pages Posted: 12 Nov 2013 Last revised: 11 Dec 2014

See all articles by Lotta Moberg

Lotta Moberg

William Blair

Vlad Tarko

University of Arizona - Department of Political Economy and Moral Science

Date Written: December 9, 2014

Abstract

Special economic zones (SEZs) have been touted as “tools for development”, and yet their results have often been disappointing. We explain how SEZs can be used to reform a country from a system dominated by rent-seeking to a liberalized economy, where officials derive their revenues from taxation rather than rent-seeking. We provide a model of elite dynamics to explain the conditions under which governments can create SEZs that promote country-wide development. Our model predicts that SEZs may only lead to country-wide development in fiscally decentralized countries with heterogeneous elites. SEZs allow areas of a country to liberalize further than the standard theory of federalism suggests. An elite minority in favor of liberalization can therefore introduce SEZs that have external liberalizing effects on other regions in the country. This in turn incentivizes more elite members to promote liberalization. Comparing the SEZ programs in China and Ghana illustrate how seemingly similar SEZ programs can have very different results.

Keywords: Special Economic Zones, Political Economy, Public Choice, Rent-Seeking, Economic Reform

JEL Classification: B52, O19, O24, O43, P26, P52

Suggested Citation

Moberg, Lotta and Tarko, Vlad, Why No Chinese Miracle in Africa? Special Economic Zones and Liberalization Avalanches (December 9, 2014). Available at SSRN: https://ssrn.com/abstract=2352520 or http://dx.doi.org/10.2139/ssrn.2352520

Lotta Moberg (Contact Author)

William Blair ( email )

Chicago, IL
United States
+13123645011 (Phone)

HOME PAGE: http://https://www.williamblairfunds.com/macro/

Vlad Tarko

University of Arizona - Department of Political Economy and Moral Science ( email )

Tucson, AZ
United States

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