Business Associations and Economic Development

For most social scientists, business associations are presumed to lobby for particular benefits and, if successful, associations thereby impede overall growth. While this presumption is warranted in many cases, this paper documents a wide range of empirical cases where associations enhance economic performance, generally by reducing information and transaction costs. The contributions by business associations can be categorized according to the general functions of: horizontal coordination, vertical coordination, reducing information costs, setting standards, and upgrading skills and technology. Examples of "developmental associations" arise in many different cultural, social, and political contexts in Africa, Asia, and Latin America. What distinguishes developmental associations from those that simply seek rents? A common characteristic of developmental business associations is institutional strength, which depends on high member density, valuable membership benefits (selective incentives), and effective internal representation of member interests. Internal strength though is not sufficient. Two further contextual or enforcement factors‹strong states and competitive markets‹ensure that associations use their strength for productive ends.