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This paper is a first attempt to apply a robust political economy framework to explain when Special Economic Zones (SEZs) can contribute to economic development. A robust political economy is one that channels the actions of self-interested individuals with limited information to promote economic progress. In the right institutional context, SEZs tend to promote economic growth. In the wrong institutional context, they can cause resource misallocation and rent-seeking. Policy makers introducing SEZs must overcome the knowledge problem to avoid misdirected economic planning. Yet, the scheme can only fulfill its purpose if it also prevents destructive rent-seeking behavior, both from businesses and from government authorities. The political economy framework of SEZs can be applied to judge their potential efficacy, something that orthodox studies of country features such as natural resources, infrastructure, and zone location fail to do. The Indian and Chinese experiences with SEZs illustrate these points.

Typescript prepared by Janis Vehmaan-Kreula at UNU-WIDER. UNU-WIDER also acknowledges core financial support to UNU-WIDER's work programme from the governments of Denmark, Finland, Sweden, and the United Kingdom.The World Institute for Development Economics Research (WIDER) was established by the United Nations University (UNU) as its first research and training centre and started work in Helsinki, Finland in 1985. The Institute undertakes applied research and policy analysis on structural changes affecting the developing and transitional economies, provides a forum for the advocacy of policies leading to robust, equitable and environmentally sustainable growth, and promotes capacity strengthening and training in the field of economic and social policy-making. Work is carried out by staff researchers and visiting scholars in Helsinki and through networks of collaborating scholars and institutions around the world.

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African countries have sought to replicate the success of East Asia by implementing special economic zones (SEZs). Despite decades of international experience, there is still no blueprint for successful SEZ policies, and the majority of SEZs fall well below expectations. This chapter argues that this is largely due to flaws in the political economy of SEZ schemes, which prevent replication of ‘best practice’ in SEZ development and management. It applies a ‘robust political economy’ framework, which divides political economy problems into those of inadequate knowledge and distorted incentives, to explain the problems with African SEZs and to suggest possible solutions.