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2008 AEC - The disconnect between formal and informal institutions in the Tanzanian firm sector: no shortcut to a conductive investment climate

25-Sep-2008

This article focuses on the institutions in the private sector for the country case study of Tanzania. It continues on a previous line of debate about the disconnect between the macro performance and the micro level outcomes, while focusing on the response of the firm sector to the improvement in the macro environment. It draws on broadly similar, but largely unconnected, schools of thought in economics and sociology to generate an analytical framework that is able to explain the muted response of the firm sector and the heterogeneity of firm performance. It probes into the underlying determinants of firm performance that can be found in the institutional and social environment of the firm and it looks into the disconnect between the formal and informal institutions. It concludes that support activities by outsiders - whether government, official donors, or non-governmental organisations - will only succeed in fostering a positive firm response if the scope of activities is broadened from strengthening formal institutions such as business organisations towards influencing the informal institutions that constitute the “play of the game” such as norms, trust, networks, collective action and propensity to innovate.

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