Regime Stability in Anocracies: The Role of Special Economic Zones

Abstract

In the two decades since Fukuyama’s famous claim of an ‘end of history,’ the number of democratic regimes increased and the number of autocratic regimes decreased, but the number of anocracies – mixed or institutionally inconsistent regimes – remains the same or slightly higher. This article presents a theory of institutionally inconsistent regime stability. Stability in all regimes is due to reinforcing and consistent institutional structures that create self-enforcing equilibria, which in turn induces elites to work together towards regime stability. The use of special economic zones (SEZs) in institutionally inconsistent anocracies allow the existing elite to prescreen and preselect new members in the winning coalition, thus creating a more consistent institutional environment in which elites are more likely to work together. Elites are chosen based upon 1) potential economic contribution and 2) potential to challenge the existing political order. This study empirically examines the role of special economic zones (SEZs) – geographically restricted investment areas with special benefits. SEZs allow for preselection and screening through the offer of special benefits and the negotiation of contracts. I use an original set of SEZ panel data covering 160 countries from 1995–2010 to examine regime stability. I first use a fixed effects model to confirm that autocracies and democracies are more stable than anocracies. I then use a Heckman selection model to examine the interaction between SEZs and regime types. I find evidence that the use of SEZs in anocracies significantly increases regime stability and marginally decreases it in autocracies.