Business Strategies in Emerging Economies: Institutions

Business Strategies in Emerging Economies: Institutions

• Institutions are the "rules of the game" in economic life
• Formal institutions, such as courts, legislatures, and bureaucracies, create and enforce rules (constitutions, laws, and regulations).
• Institutions affect property rights, contract enforcement, and behaviors (coercive, fraudulent, and anti-competitive).
• Institutions aim to provide access to opportunities for the general population, constrain elite power, and manage conflict.
• They also help with coordination, social insurance, and macroeconomic stability.

Nature and Role of Economic Institutions

• Institutions support a system of specific laws and regulations related to economic institutions. This is vital to understand their role.
• The creation and maintenance of institutions are influenced by political forces.

Institutions and Economic Development

• Institutions are paramount determinants of economic performance.
• Causality can go both ways: strong institutions can lead to development, and development can create stronger institutions.
• Economic growth can increase the demand for higher-quality institutions.
• Quality institutions can be expensive to create and maintain.

Economic Growth to Stronger Institutions

• Increased wealth and prosperity can drive demands for better institutions.
• Growth makes quality institutions more affordable in the long run.

Institutions and Economic Development: Nonlinear Relationship

• The relation between institutions and economic development is not always linear and consistent.
• This relation differs across various societies and evolves over time, even within the same society.

Institutional Theory and Business Development

• The environment plays a critical role in entrepreneurial decisions and ventures characteristics.
• Necessity and opportunity are motivating factors for entrepreneurship.

Empirical Evidence

• Sobel (2008) studied the connection between state-level institutions (political, legal) and productive as well as unproductive entrepreneurship, using data from 48 US states.
• Herrera-Acheverri et al. (2014) investigated the link between institutional strength and business creation across 87 countries using panel data over the 2004-2009 period.

Effects on Foreign Direct Investment

• Du et al. (2008) researched the impact of economic institutions on locations' FDI choice. They investigated how government interventions and intellectual property rights impacted FDI.

Informal Institutions

• Informal institutions (unwritten rules, ethics, conventions) are critical in developing and emerging economies.
• Informal institutions often shape incentives, influence markets, states, and democratic regimes.
• They can support failing institutions or undermine formal ones. Their effects can vary from problem-creating (corruption) to complementary (informal norms assisting governance).

Informal Institutions: Outcomes/Dimensions

• Compatible goals in formal & informal institutions are categorized as "convergent."
• Conflicting goals are labeled "divergent."
• Ineffective formal institutions sometimes have substitutive and complementary informal institutions.
• Competing informal institutions emerge from conflict in formal rules enforcement.
• Accommodating informal institutions demonstrate an interplay between formal and informal rules.

Role of Informal Institutions: BRIC Countries

• Examining BRIC countries (Brazil, Russia, India, China), variations in the relationships between formal and informal institutions are evident in terms of their roles in corporate governance.

Institutions in Africa

• African states often have weak institutions, including problematic property rights, politicized judiciaries, and ineffective parliamentary systems.
• Many African countries have undertaken institutional reform since the early 1990s, which led to relatively functional institutions.

Institutional Dysfunction in Africa

• Colonial history, authoritarianism, and exploitation contributed significantly to Africa's inefficient institutions.
• Neopatrimonialism, characterized by patronage and corruption, often shapes governance.

Fighting Corruption and Strengthening Institutional Quality

• Success stories, such as India and Botswana, show instances of battling corruption and enhancing institutional quality.

The Andra Pradesh e-Governance Story

• E-governance initiatives in Andra Pradesh demonstrate how addressing corruption in a practical sense can significantly benefit the country.

The Botswana Case

• Botswana exhibits a rapid growth trajectory from 1950 to 2018, influenced by crucial factors like aid, political stability, and successful economic systems.

Moving Beyond Africa's Crisis of Institutions

• Botswana's success highlights the importance of institutional development converging with stakeholder interests, robust incentive structures, diversified economic systems, strong leadership, and ethical/visionary leaders.
• Solutions involve confronting socio-political mechanisms that promote neo-patrimonialism and nurturing future, responsible leadership.

Explore the crucial role of institutions in shaping economic strategies within emerging economies. This quiz examines how formal institutions impact property rights and economic performance, and how political forces influence their creation. Test your understanding of how these 'rules of the game' facilitate development and stability.