Business Associations, Business Climate, and Economic Growth: Evidence from Transition Economies

09.01.2008 | Articles | John D. Sullivan, Kim Eric Bettcher

Interest groups are rarely portrayed in a positive light. In economic theories of regulation, collective action, and rent-seeking, interest groups are commonly perceived as seeking some form of redistribution through a political process. In particular, interest groups in the private sector – business associations, chambers of commerce, trade groups, and others – are most commonly portrayed as lobbying for some set of benefits for their members at the expense of other groups, whether they are subsidies, trade protection, or price breaks.

In CIPE’s latest issue paper, John D. Sullivan, Kim Eric Bettcher, and Aleksandr Shkolnikov present a different view of private sector associations in the context of the post-communist transition. The transition process in Central and Eastern Europe in the late 1980s to early 1990s brought to the forefront a new set of questions in regards to the role that interest groups can play. As countries began to explore free markets and mechanisms to put them in place after decades of command-style economic disasters, private-sector interest groups emerged as primary participants in this process. In many cases, private-sector interest groups were participants in successful reform efforts. Acting as the liaison between policymakers and economic agents, business associations and chambers of commerce channeled information and reform recommendations from businesspeople, facilitating the development of a business-friendly environment.

This paper explores how firms, represented by business associations, can provide information and create political support for rules that foster a better business climate. The authors conclude, “Painting all interest groups with the same brush is a mistake. Different groups pursue different agendas and have different effects on economic, social, and political institutions. (…) If market-enhancing private sector organizations succeed in creating a good business climate through bottom-up, participatory policymaking, then countries have a much better chance of generating long-term economic growth.”

Paper at a Glance

• The link between business associations and economic growth in the
transitional economies of Central and Eastern Europe is re-examined
through the prism of new institutional economics.

• By promoting a better business climate, market-enhancing business
associations can help to build the foundation for economic growth.

• The Center for International Private Enterprise’s (CIPE) seven-step
reform agenda process is a powerful tool for advancing business
associations’ participation in policy making.

• Case examples from CIPE programs in Romania and Russia illustrate
how associations can solve the collective action problem.