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Contractual governance, business groups and transition

Author

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  • Raja Kali

Abstract

We suggest a unified framework to explain the following stylized pattern in the development of contractual governance and industrial organization. Contractual governance in many emerging economies is characterized by relational contracting. Coincident with relational contracts are large, diversified organizations — often referred to as business groups. As institutions and market intermediaries develop, a process of transition from relational contracting to arms‐length explicit contracting takes place. During this phase relational and explicit contracts complement each other. Business groups initially expand in size, scope and increase the strength of ties. As development proceeds, a threshold is crossed after which business groups begin to unravel. This process of transition in contractual governance is often accompanied by a period of rapid growth, which eventually comes to a stop. JEL classification: L22, L14, O17.

Suggested Citation

  • Raja Kali, 2002. "Contractual governance, business groups and transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(2), pages 255-272, July.
    • Handle: RePEc:bla:etrans:v:10:y:2002:i:2:p:255-272
    DOI: 10.1111/1468-0351.00111
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    Citations

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    Cited by:

    1. Christa Hainz, 2007. "Business Groups in Emerging Markets: Financial Control and Sequential Investments," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(2), pages 336-355, June.
    2. Hainz, Christa, 2004. "Business Groups in Emerging Markets - Substitutes for Missing Institutions," Discussion Papers in Economics 387, University of Munich, Department of Economics.
    3. Chassagnon, Virgile, 2014. "Consummate cooperation in the network-firm: Theoretical insights and empirical findings," European Management Journal, Elsevier, vol. 32(2), pages 260-274.
    4. Christa Hainz, 2006. "Business Groups in Emerging Markets-Financial Control & Sequential Investment," William Davidson Institute Working Papers Series wp830, William Davidson Institute at the University of Michigan.

    More about this item

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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