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Most current theoretical treatments view business associations as rent-seeking, special interest groups. Yet, empirical research in a wide range of developing countries reveals a broad range of functions and activities undertaken by business associations, many of which promote efficiency. These positive functions address crucial development issues (emphasized in the New Institutional Economics) such as strengthening property rights, facilitating vertical and horizontal coordination, reducing information costs, and upgrading worker training. The associations that engage in these developmental activities tend to be well organized and staffed. This institutional strength depends in turn on high member density, valuable selective benefits (often delegated by governments), and effective internal mediation of member interests. In addition external factors, especially competitive markets and government pressure, encourage associations to use their institutional strength for productive ends.

Economists have identified the existence of a middle-income (MI) trap but have yet to analyze the politics of this trap. The authors argue that countries in theMItrap face two major institutional and political challenges. First, the policies necessary to upgrade productivity—as in human capital and innovation—require enormous investment in institutional capacity. Second, these institutional challenges come at a time when political capacity for building these institutions is weak, due primarily to the fragmentation of potential support coalitions. Politics are stalled in particular by fractured social groups, especially business and labor, and more generally by inequality. These conditions result in large measure from previous trajectories of growth. The empirical analysis concentrates on nine of the largerMIcountries.

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Analyses of economic growth have drawn on the experiences of the East Asian newly industrializing countries to highlight the contribution of cohesive and autonomous states in the resolution of market failures. Within an explicit collective action and public goods framework, this article argues for an institutionalist approach to development that incorporates, but also goes beyond, statism. Through an examination of auto manufacturing in five countries in Southeast and Northeast Asia, the article identifies specific collective action problems central to the development process, and it explores limits to the capacities of even strong states to resolve such problems. The article stresses the role of private sectors and joint publicprivate sector institutions, identifies systematic differences within and among local entrepreneurs with regard to development issues, emphasizes the need for research on factors influencing the supply of institutions; and argues for an approach to development that emphasizes cooperation among domestic interests rather than domination.