We develop a theory for a transition economy under which an unbalanced development strategy that favors special economic zones emerges as a response to two critical problems: (1) political pressure to satisfy certain social expenditure requirements, and (2) the lack of institutions to constrain the state from expropriation. By promoting the concentration of resources in some areas, a low equilibrium trap can be avoided, while important spillover effects may be generated elsewhere. The experience of China with special economic zones and coastal open areas is interpreted in this light. Some problems in the Russian economy are also discussed in the context of this theory.

Key Words: Unbalanced Development, Special Economic Zones, Political Constraint, Commitment, Transition Economies

Journal of Economic Literature Classification Numbers: O20, P41, H30

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Paper provided by Stanford University, Department of Economics in its series Working Papers with number 97044.

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Keywords: Unbalanced Development; Special Economic Zones; Political Constraint; Commitment; Transition Economies;

Find related papers by JEL classification:
O20 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - General
P41 - Economic Systems - - Other Economic Systems - - - Planning, Coordination, and Reform
H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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