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Informal state–business connections, institutions, and economic growth

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  • Mohamed Ismail Sabry

    (Bremen University of Applied Sciences
    Philipps University of Marburg)

Abstract

In today’s world, continuous interactions between government officials and business people in market transactions are inevitable, opening the way for state–business cooperation and, consequently, various forms of state–business relations (SBR). This paper discusses informal SBR and their effect on economic growth. It does so while accounting for various institutional settings, arguing that studying the interaction between informal SBR and existing institutions is important in this regard. This is done both theoretically and empirically. Two questions are being tackled. The first is: which institutions—specifically governance institutions—help informal SBR in realizing higher levels of economic growth? The second is: can informal SBR correct the institutional deficiencies of some institutions and lead to better economic outcomes? After a theoretical discussion, an OLS cross-sectional regression model is used to answer the research question. The obtained results suggest that informal SBR do have a positive effect on investment (and ultimately economic growth) when good institutions are established. In this paper, those institutions are suggested to be voice and accountability, control of corruption/cronyism, and government effectiveness. The results also suggest that informal SBR, by building trust, can overcome some institutional impediments such as ethnic fractionalization and (with less certainty) some hierarchical cultures, leading ultimately to more investment and economic growth.

Suggested Citation

  • Mohamed Ismail Sabry, 2017. "Informal state–business connections, institutions, and economic growth," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 34(2), pages 233-258, August.
  • Handle: RePEc:spr:epolit:v:34:y:2017:i:2:d:10.1007_s40888-017-0061-7
    DOI: 10.1007/s40888-017-0061-7
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    Cited by:

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    More about this item

    Keywords

    State–business relations; State–business networks; State–business connections; Institutions; Governance; Ethnic fractionalization; Legal systems; Hierarchical cultures; Economic growth;
    All these keywords.

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • K15 - Law and Economics - - Basic Areas of Law - - - Civil Law; Common Law
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • Z1 - Other Special Topics - - Cultural Economics

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