Public-private Sector Relationships in Developing Countries

This paper refutes the conventional wisdom, bolstered in the wake of the Asian financial crisis that governments should not become too friendly with the private sector but, instead, should remain neutral and at arms-length distance. The empirical findings presented here indicate that countries in which governments have forged close and cooperative working relationships with the private sector have had much greater economic success. Furthermore, countries with more business-friendly public-private sector relationships tend to exhibit greater positive responsiveness to pro-growth policy reforms. In many developing countries today, where public-private sector relationships are characterized more by mistrust than cooperation, more not less collaboration is needed to spur economic growth. The art of governance, however, is avoiding state capture and not letting this partnership degenerate into favoritism and cronyism.