Liberalizing Rent-Seeking: How Export Processing Zones Can Save or Sink an Economy

This paper presents export processing zones (EPZs) as a rent-seeking tool with the appearance of a development policy. My model of endogenous tariff formation illustrates how interest groups lobby for or against protectionism, which provides rents for the government. EPZs are a way to liberalize the economy while preserving some of these rents. They are therefore beneficial if their political alternative is more protectionism. The model indicates that EPZs do not benefit an economy via backward linkages but through marginal improvements to a country's trade regime. A case study of the EPZs in the Dominican Republic confirms the theoretical discussions.