Trust and inter‐firm relations in developing and transition economies

The role of trust in facilitating economic growth has been highlighted in previous contributions to this journal. In order to take this debate forward, this article argues (1) that more attention needs to be given to the relationship between sanctions and trust, and (2) that it is worth distinguishing between the minimal trust for making markets effective and the extended trust required for deeper kinds of inter‐firm co‐operation to work. The article goes on to ask why minimal trust is lacking and so hard to construct in the republics of the former Soviet Union. It then examines how extended trust grows or can be made to grow in industrial supply chains and clusters in developing countries.     

Minority entrepreneurs and firm performance in sub‐Saharan Africa

This study focuses on the role of entrepreneurs in the private sector in sub‐Saharan Africa. Using data from the Regional Program on Enterprise Development (RPED) and controlling for various factors, our analysis compares growth rates of indigenously owned African firms with firms owned by entrepreneurs of Asian or European descent, in Kenya, Zambia, Zimbabwe, and Tanzania. We find that after controlling for firm size and age, various entrepreneurial characteristics, and sector and country differences, minority (or non‐indigenous) entrepreneur firms start out larger and grow significantly faster than indigenously‐owned African firms. Our results are consistent with theories that argue that informational and financial networks created by minority entrepreneurs provide access to credit, information, and technology for members of these networks. We also find that within indigenously‐owned African firms, entrepreneurs with secondary and/or university education realise a higher rate of growth; access to education presumably enables indigenous African entrepreneurs to develop managerial skills that serve as a substitute for the informational and financial networks created by minority entrepreneurs.     

The ‘true protection’ concept ‐ a comment on Greenaway and Milner

Empirical studies estimating shift‐parameters to evaluate the ‘true protection’ especially for developing countries often reach the result that those parameters have very high values. This study is to show that it is not substitutional relationships but much more the very inflationary monetary policy of many developing countries which forces the shift‐parameters towards one. Moreover it is shown that it makes little sense to distinguish between ‘traditional’ and ‘non‐traditional’ exports and that shift‐parameters are not necessarily stable over time.     

Directed credit and investment in small‐scale industry in India: Evidence from firm‐level data 1965–78

Panel data on 788 modern sector Indian firms during 1965–78 are used to analyse the link between the size of a firm and its financial environment. Exogeneity tests reveal that large firms with improved investment prospects could obtain external finance at the margin, but that small firms could not. The policy of directing bank credit accordingly relaxed a binding constraint on small firms, raising investment. Assuming that all of the rise in the credit‐sales ratio in small firms was policy‐induced then so was about one third of the 170 per cent rise during 1965—78 in their investment—sales ratio.     

Japan's post‐war protection policy: Some implications for less developed countries

This article examines some of the implications of Japan's postwar development for contemporary developing countries. Whilst acknowledging the qualitative differences in economic structure between Japan in 1945 and today's developing countries it argues that many of Japan's decisions on economic strategy throw light on current debates regarding the merits of free trade or protectionism as strategies for developing countries. It stresses however the key role played in Japan by the highly competitive nature of the internal market and stresses the need to consider policies to stimulate a more competitive internal structure within developing country markets.     

The war‐making state and privatisation

States, created with the central purpose of defending national independence, resist the process of macro‐economic reform since it appears to limit their power to pursue this aim. The states of the former Centrally Planned Economies were marked out by their extreme subordination to the military drive, so the resistance to reshaping the ‘war‐making state’ into a ‘market‐facilitating state’ is considerable. The transition tends to be halted where the old structures of central control are ended without markets supplying alternative imperatives — a ‘rent‐seeking state’ is created. These themes are examined in relationship to privatisation of state owned enterprises in four countries: Russia, China, Vietnam and the Ukraine.     

Non‐tariff measures and United States' imports of CBERA‐eligible products

Trade coverage ratios are calculated to assess the 1991 incidence of non‐tariff measures (NTMs) on imports of products eligible for duty‐free treatment under the United States’ Caribbean Basin Economic Recovery Act (CBERA). Overall, 16 per cent of all CBERA‐eligible products were found to be covered by one or more NTM. Corresponding figures for all eligible products exported from individual beneficiaries range up to 40 per cent. Much higher trade coverage ratios are found for individual product groups. NTMs constitute important deterrents to US imports of CBERA‐eligible products. Heavy reliance on NTMs counters the intent of the CBERA, namely to extend preferential treatment to exports from Caribbean Basin countries.     

Farm‐to‐market transaction costs and specialisation in small‐scale agriculture: Explorations with a non‐separable household model

Using an integrated household model with endogenous transaction costs, this article illustrates how, even in the absence of risk, the tension between gains from specialisation and corresponding increases in transaction costs may lead to enterprise diversification on small farms. A numerical example illustrates that this tension may contribute to the prevalence of inter‐cropped cash‐crops on small farms, in apparent disregard for foregone yield and income from greater specialisation involving pure‐stands. By implication, measures that augment households’ abilities to override trading costs may be critical complements to efforts seeking to raise productivity and incomes in small‐scale agriculture via increased specialisation.     

Production and substitution in two‐gap models

The paper examines the assumptions about production and factor substitution in two‐gap models. It focusses on the basic assumption of substitution between domestic and imported capital inputs implicit in the foreign exchange constraint argument. The elasticity of substitution between these two sets of inputs is measured using time series regressions employing data from Argentina. It is concluded that in Argentina the observed capacity to substitute domestic for imported inputs was substantial. It is argued that for countries with a somewhat developed industrial sector, rigid assumptions of complementarity between domestic and imported inputs might be inappropriate, and that projection of foreign exchange requirements based on such assumptions, commonly employed in two‐gap models, would be questionable.     

The dual and the exchange‐constrained economy

Nelson's model of the exchange‐constrained economy is compared with Eckaus's model of the dual economy. The purpose of this comparison is to illustrate the similarity of the models in explaining unemployment of one factor as the result of the composition of demand and the scarcity of a second factor. Both authors agree to this point. However, Nelson emphasises that unemployment arises from price rigidity while Eckaus maintains that technological limits of substitution are also important. Policy implications differ depending on whether Nelson's or Eckaus's assumptions are accepted. Currie has suggested that the redistribution of income may reduce unemployment in both circumstances.