The Economics and Politics of State-Business Relations in Africa: Preliminary Findings

Abstract

This volume contains a series of four papers highlighting economic and political approaches toward studying state-business relations. The first paper, by Te Velde, suggests that so far we know actually very little about the growth effects of effective state-business relationships (SBR) and suggests this is in part because it is hard to measure. Nonetheless, it is suggested that effective SBRs can lead to a more optimal allocation of resources in the economy, including an increased effectiveness of government involvement in supporting private sector activities and removing obstacles. The paper develops an index of SBRs. The second paper by Sen and Te Velde uses the macro index developed on the basis of measuring SBR and estimates standard growth regressions in dynamic panel form for 20 African countries over the period 1970-2004, controlling for more conventionally used measures of institutional quality in the empirical literature. They show, using sophisticated econometric techniques, how state-business relationships contribute significantly to economic growth in Sub-Saharan Africa. The third paper by Qureshi and Te Velde provides a micro econometric approach to essentially the same questions. A micro level indicator of state-business relations associated with good SBRs is an organized private sector, measurable as firm membership of business associations. Business associations provide different services. The World Bank investment climate questionnaire asks firms which services are perceived to be most important. Lobbying government and information on government regulations are on average the two most important services provided by business associations to the firms covered in the sample. The least important services are resolution of disputes (with officials, workers, or other firms) and accrediting standards or quality of products. Research also shows that business membership varies by sector and firm size. The econometric approach estimates a production function on the basis of firms in seven African countries to examine how SBRs affect firm level productivity. The fourth paper by Chingaipe and Leftwich offers a political perspective on state-business relation, in the case of Malawi, and focuses more on what creates and sustains SBRs. They examine both the state and business side and the direct links between them. They adopt an historical institutionalist approach and examine the factors that have shaped SBRs including the level of capitalist development, the dominance of the state, and the way in which informal institutions have blurred the distinction between public and private sectors