The investment climate in Egypt : institutions or relationships as conditions for sustainable reform
Humphrey, John; Yousfi, Hèla (2008), The investment climate in Egypt : institutions or relationships as conditions for sustainable reform. https://basepub.dauphine.fr/handle/123456789/231
TypeDocument de travail / Working paper
Series titleWorking paper
MetadataShow full item record
Abstract (EN)Countries referred to as “developing” are being urgedmore and more to reform their “investment climate”. It isoften said that a “good” investment climate leads to bothincreased economic growth and reduced poverty. In thesecountries, corrupt government, clientelism, a lack of transparencyin political activities and authoritarianism are oftenseen as reasons behind unattractive investment climatesfor investors. International development agencies believethat by adopting institutional reforms based on the bestpractices that have proved effective elsewhere, these countriescould take their places in the globalised economy. Theimplicit argument is that the only way to generate thenecessary confidence to create a good investment climateis to substitute a system of cooperation between privateinvestors and public actors based on personal relationshipsfor an institutional system based on formal and impersonalrules. However, experience has shown that merelyintroducing the “right” institutions is not sufficient to bringimproved economic performance to developing countries.Important issues are raised for societies operating under amode of trust production based on personal relationships.Are they doomed to nepotism and corruption? Is the investmentclimate irretrievably entrenched in the fact that transactioncosts become very high as soon as we move awayfrom operations between networks of friends? Is it necessary,therefore, that these societies undergo some kind of culturalrevolution which leads to the implementation of an institutionalsystem based on the Rule of Law and the enforcementof property rights, in line with the theory developed byNorth? This would be necessary for creating an effectivecooperation between individuals who have no particularisticrelationships with each other. Based on a case study carriedout in Egypt, we will argue by using an ethnographicapproach that this thesis is not sustained.Our observations show that it is possible to improve theinvestment climate, achieve effective cooperation betweenprivate investors and political decision-makers, fight againstcorruption and make effective progress without waiting forradical institutional reform. In fact, improvements to theinvestment climate in Egypt are due to the novel combinationof “clear rules” and “flexibility” to meet the needs ofinvestors as they arise. In this case, the ability to “adjust therules” to meet specific problems faced by investorsimproves the investment climate, rather than introducingundesirable uncertainty.In this way, we demonstrate that improving trust betweenprivate investors and public authorities is certainly a question ofreforming institutions. However, the issue for developing countriesis not to substitute particularist relationships for formal universalrules to improve the investment climate, but rather tohave the capacity to establish institutional systems that reflectthe local conception of a “good” cooperation.
Subjects / KeywordsPays en voie de développement
Showing items related by title and author.