Social interactions and contract enforcement in the postcolonial Arab world. Evidence from the industrial elite of Morocco, 1956–1982

This paper examines the role of social interactions in contract enforcement within the postcolonial Arab world, with a specific focus on Morocco. Through extensive interviews with members of the industrial elite during the import-substituting industrialization (ISI) period, we uncover a significant risk of contractual breaches. Despite this risk, there was a reluctance to use social connections to penalize those who breached contracts. Legal recourse was also rarely pursued. Instead, business leaders leaned on their social networks to assess potential partners and resolve disputes through bilateral channels. This reliance on social ties was facilitated by the close-knit and compact nature of the business community. In the post-ISI era, characterized by a larger and more diverse industrial elite, there was a noticeable increase in contractual disputes, accompanied by a shift towards more aggressive resolution methods. We present a theoretical model that elucidates how these dynamics naturally emerge from an environment where economic and social interactions are intertwined.