ABSTRACT
This chapter looks at how a government may choose SEZs to avoid broader economic reforms and what the implications are for their economic benefits. It is assumed that policy makers are self-interested. The chapter shows show why we see so many moderately successful SEZs. Because SEZs are a middle way between liberalization and protectionism, they are handy tools for policy makers who are torn between those two policy directions. The clearest way to illustrate the role of SEZs in protectionism is to consider how a government as a whole benefits from import tariffs. Economic development can therefore hardly be the motivation of a unified government introducing SEZs. If the government is bound to pursue liberalization, either as a way to earn more rents or because of external pressure to do so, SEZs offer a way to avoid liberalizing the economy as a whole. The prospects of rents are a powerful rationale for policy makers to maintain their protectionist regime.
