Understanding the Environments of Emerging Markets: The Social Costs of Institutional Voids

During the past decade, emerging markets have had extraordinarily high growth rates compared to developed countries. Many agree that a distinctive characteristic of emerging markets is their rhythm of growth. Over the past thirty years, emerging markets have been encouraged to shape their institu tions to foster the development of business, both domestic and international, under the assumption that the efficient functioning of markets is core to economic growth. Although emerging markets have achieved fast growth rates in the past, and are expected to do so in years to come, there is evidence that they still lag behind developed countries in several key areas, such as human development, institu - tional competence, transparency levels and other social features. I argue that insti - tu tio nal weakness is one of the main reasons for this disappointing performance. The view that markets provide superior mechanisms to incentivise econo mic activity has dominated academic perspectives on economic growth. A major challenge for a perspective whose goals are centred primarily on economic growth is that it tends to ignore the potential benefits of institutions in shaping other features of society which are core to a more comprehensive view of growth, i.e. one that takes into account its sustainability. In this lecture, I define institu - tional voids as gaps between rules and their purpose and the effecti veness of their implementation. Though institutional voids can be positive to business in many respects, by creating opportunities for new business and entrepreneurship, it is also important to consider that voids emerge when economic growth advances faster than social and institutional structures. Hence, voids can also generate unwanted consequences for society, such as the over-exploitation of human and natural resources. In this lecture, I will consider two types of voids: structural and contingent. Structural voids relate to the distance between rules as they are in the book and the institutional capacity for their enforcement. Contingent voids arise from a combination of factors unique to given environments such as the social and economic contexts in which they are embedded, i.e. pressures for growth. I will discuss some examples of structural and contingent voids mainly in the Brazilian context and propose a model to analyse how they emerge, in order to indicate how institutions can address the issue of voids. I suggest that emerging markets can only make the leap forward to a stage of sustainable growth if attention is focused on institution building and effectiveness, through a design that considers intra- and inter-institutional coordination together with strategies aimed at achieving embeddedness in both practice and behaviour. I now want to share with you some ideas about economic development, the institutional environments in emerging markets and the costs of growth.

• View at Worldcat

Free Full Text ( Final Version , 972kb )