Facilitating Development: The Role of Business Groups
50 Pages Posted: 25 Jun 1998
Date Written: February 1998
A defining characteristic of developing countries is the inadequacy of basic services normally required to support organized economic activity. One way in which the private sector acts to facilitate development is through investments orchestrated by agglomerations of firms called business groups. Such groups dominate the landscape of virtually all developing countries. Our study of plant location decisions in India shows that group-affiliates are more likely to (profitably) locate in less-developed states than unaffiliated firms. The magnitudes of the effects are large and significant, with group affiliates being between 20% and 33% more likely to locate in less-developed states than unaffiliated firms. We suggest that this is because the scale and scope of groups, and the de facto property rights enforcement within groups in environments where legal enforcement is lacking, permit them to overcome of the difficulties that impair production in underdeveloped regions.
JEL Classification: D21, L23, O12
Suggested Citation: Suggested Citation