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Lawlessness and economic governance: the case ofhawalasystem in Somalia

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  • Abdirashid A. Ismail

Abstract

Purpose - The purpose of this paper is to describe how informal money transfer system known ashawalaworks in Somalia. The paper also intends to contribute to the current debate on the lawlessness and economics of governance. Design/methodology/approach - The paper uses an institutional approach and a simple game theoretical model. The author interviewed agents and informants of thehawalasystem but mainly relied on surveying the literature. Findings - To support economic relationships and increase the future cost of hold ups by their agents, thehawalacompanies, with the help of two main social institutions, use seven main strategies. Research limitations/implications - A research on contract enforcement should involve with the contract partners (i.e. firms and agents) and third part enfocers (i.e. social groups). However, the author findings are based on surveying the existing literature and interviewing on a small number of agents and other informants in the West. Further, research should examine the practical experience of owners/managers of the firms and the traditional/religious leaders. Practical implications - Establishing future formal commercial laws in Somalia, currently functioning informal mechanisms should be taken into great consideration. Originality/value - This paper is one of very few research studies on thehawalasystem. Further more, little if any attention has been paid on economic governance aspect of the system by these studies. According to the authors' knowledge the paper is the only one that considers economic governance with the case of complete picture of statelessness in our contemporary world.

Suggested Citation

  • Abdirashid A. Ismail, 2007. "Lawlessness and economic governance: the case ofhawalasystem in Somalia," International Journal of Development Issues, Emerald Group Publishing Limited, vol. 6(2), pages 168-185, May.
    • Handle: RePEc:eme:ijdipp:v:6:y:2007:i:2:p:168-185
    DOI: 10.1108/14468950710843415
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    References listed on IDEAS

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    1. Paul R. Milgrom & Douglass C. North & Barry R. Weingast*, 1990. "The Role Of Institutions In The Revival Of Trade: The Law Merchant, Private Judges, And The Champagne Fairs," Economics and Politics, Wiley Blackwell, vol. 2(1), pages 1-23, March.
    2. Oliver E. Williamson, 2005. "The Economics of Governance," American Economic Review, American Economic Association, vol. 95(2), pages 1-18, May.
    3. Hendley, Kathryn & Murrell, Peter, 2003. "Which mechanisms support the fulfillment of sales agreements?: Asking decision-makers in firms," Economics Letters, Elsevier, vol. 78(1), pages 49-54, January.
    4. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-950, October.
    5. Leeson, Peter T., 2007. "Better off stateless: Somalia before and after government collapse," Journal of Comparative Economics, Elsevier, vol. 35(4), pages 689-710, December.
    6. Simon Johnson & John McMillan, 2002. "Courts and Relational Contracts," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 18(1), pages 221-277, April.
    7. repec:umd:umdeco:murrellromania2 is not listed on IDEAS
    8. Ken Binmore, 1994. "Game Theory and the Social Contract, Volume 1: Playing Fair," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262023636, December.
    9. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-548, June.
    10. Greif, Avner & Milgrom, Paul & Weingast, Barry R, 1994. "Coordination, Commitment, and Enforcement: The Case of the Merchant Guild," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 745-776, August.
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    Cited by:

    1. Emily C. Schaeffer, 2008. "Remittances and Reputations in Hawala Money- Transfer Systems: Self-Enforcing Exchange on an International Scale," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 24(Fall 2008), pages 95-117.

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