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The theory behind special economic zones (SEZs) focuses on their role in overcoming broader policy failings in a country. This paper hypothesizes that the ability of smaller countries to reform more quickly provides a theoretical ‘missing link’ as to how SEZs can assist reform, developing the idea of SEZs as a ‘small country in a large country’. Using a new database, the paper tests this proposition by examining if SEZs have actually been able to spur on institutional improvement in large countries. Results show that SEZs do influence the institutional development of a country, contingent upon prevailing institutional trends.

The theory behind special economic zones (SEZs) focuses on their role in overcoming broader policy failings in a country. This paper hypothesizes that the ability of smaller countries to reform more quickly provides a theoretical ‘missing link’ as to how SEZs can assist reform, developing the idea of SEZs as a ‘small country in a large country’. Using a new database, the paper tests this proposition by examining if SEZs have actually been able to spur on institutional improvement in large countries. Results show that SEZs do influence the institutional development of a country, contingent upon prevailing institutional trends.

In 1951, Paul Samuelson showed that a surprisingly rich class of economies the production possibility frontier is a linear and even with neoclassical substitution possibilities, as outputs adjust, firms continue to use inputs and outputs in the same proportions. This model is often thought to be of limited practical value since it assumes that there is only one non-produced factor, and no joint production. The single factor assumption rules out economies in which agriculture and mining are important and the lack of joint production leaves no good way to handle durable capital goods. In this paper, I extend the Samuelson model to small trading economies with many nontradeable goods, some of which may be fixed factors, and where joint production is allowed. In my model, althought the production possibility frontier may be curved, the consumption possibility frontier after trade is linear. Output prices and wages of labor are determined independently of factor endowments or demand. The prices of other non-traded factors may depend on endowments but are independent of demand.

In 1951, Paul Samuelson showed that a surprisingly rich class of economies the production possibility frontier is a linear and even with neoclassical substitution possibilities, as outputs adjust, firms continue to use inputs and outputs in the same proportions. This model is often thought to be of limited practical value since it assumes that there is only one non-produced factor, and no joint production. The single factor assumption rules out economies in which agriculture and mining are important and the lack of joint production leaves no good way to handle durable capital goods. In this paper, I extend the Samuelson model to small trading economies with many nontradeable goods, some of which may be fixed factors, and where joint production is allowed. In my model, althought the production possibility frontier may be curved, the consumption possibility frontier after trade is linear. Output prices and wages of labor are determined independently of factor endowments or demand. The prices of other non-traded factors may depend on endowments but are independent of demand.