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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.

The authors use a combination of formal modeling and case studies.

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.

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.

The purpose of this paper is to show how special economic zones (SEZs) can be applied to refugee camps. Zones are powerful tools for investors to act like institutional entrepreneurs, who promote institutional reform by pursuing exemptions from government constraints and taxes or by advocating for reform. Refugee SEZs (R-SEZs) would similarly allow for institutional entrepreneurs to promote broader immigration reform.

The authors apply a political economy framework to R-SEZs that explores the factors that make them feasible. A mathematical model is applied to explicitly define the conditions under which the zones could succeed in benefiting refugees, investors and the host economy alike.

Under certain conditions, appropriate tax rates can be applied to R-SEZs that make them feasible. Feasibility is determined by being beneficial for the host country while also attracting investors. The zones are feasible if they attract enough foreign investors as opposed to domestic investors. Other factors contributing to zone success are higher wages outside the zone, lower wages inside it, higher cost to the government of non-employed refugees, lower relocation cost for businesses and a higher tax rate outside the zone.

This policy would aim to provide job opportunities to refugees, profit opportunities to investors and lower net costs for the host government. R-SEZs should be considered by policy makers in countries hosting refugee camps. Just like the old model of SEZs, they can benefit workers while also enhancing the government’s budget.

R-SEZs have the potential to alleviate the refugee crisis the world is facing, which is arguably one of the largest social challenges of our time.

This paper is the first to outline the political economy conditions for SEZs applied to refugee camps.

These zones offer participants a wide variety of incentives and can be found in sizes ranging from a few square acres to entire large cities. The diversity among SEZs presents an opportunity for new research.

Special economic zones (SEZs) have grown exponentially in popularity during the past few decades, in size and scope. They are often lauded as instruments central to enhancing economic growth in developing countries. However, the empirical evidence on the relationship between SEZs and growth is inconclusive.

The analysis concludes that corruption leads to the creation of smaller zones that are likely the products of rent-seeking.

The authors argue that SEZs can be effective vehicles for rent-seeking, especially geographically small zones and develop an empirical model to explore the relationship between zone size and the impetus for the zone creation, namely corruption. Specifically, the authors analyze whether these small zones are vehicles of economic growth or manifestations of country wide corruption.