ABSTRACT
To see why SEZs succeed or fail, we need to understand the capabilities and goals of the people who govern them. SEZs can then be a potent tool for those opting for economic reforms. Mainstream economic analyses generally assume a government introduces SEZs to maximize the welfare of the people it represents. A robust political economy analysis helps identify these problems, detect the environments in which they tend to occur, and identify possible institutional solutions. The chapter takes a closer look at the logic behind the knowledge problem and the incentive problem. A political economy analysis extends assumptions about ordinary people's ignorance to people in government. While economists often model market actors as having complete information, many models do include components of uncertainty or imperfect information. The other imperfection policy makers share with ordinary people is their self-interest. A robust political economy does not guarantee economic success for a country.
