Economic institutions and the development of Burma/Myanmar's private sector

Economic institutions are the rules of the economic game that define the incentives and constraints for businesses, and are integral to the development of an economy. Myanmar’s institutions have a turbulent history, shifting repeatedly due to the frequent changes in ruling regimes. In the 19th century, British colonization brought market-supporting institutions to replace the existing traditional, informal institutions. Despite their success in facilitating export-led economic growth, the Burmese population viewed colonial institutions as exploitative, which contributed to increasing state-domination of institutions throughout the 20th century. The socialist government that came to power in 1962 abolished markets and their supporting institutions, and gave the government widespread authority to control and implement economic activity. Though the government was incapable of exploiting this authority, successive regimes retained many of these formal powers, delegating them through an opaque system which limits access to economic opportunities and gives the state power to dictate economic outcomes. The state also exerts influence over transactions, which often hinge on permissions, connections, and bribery. Property rights, which depend on a ‘strong but limited state’ for their defence, instead face a ‘weak but unlimited state’ in Myanmar, with few bounds on government’s formal authority and weak market-supporting institutions. Arbitrary implementation and unpredictability are fundamental characteristics of Myanmar’s institutional framework, incentivizing businesses to engage in bribery, build relationships and result depend on informal, relation-based mechanisms to facilitate exchange. This thesis examines the impact of economic institutions on businesses in Myanmar, drawing on over 150 quantitative surveys and 60 interviews conducted during almost two years in country. It examines how institutions shape transactions, firm-level outcomes, and decision making, and finds that they have a material impact on firm performance. Weak institutions deter investment, restrict competition, lead to lower productivity, and distort price signals, skewing the allocation of capital and labour. It argues that Myanmar's existing economic institutions are heavily influenced by history, and that the socialist-era governance of business has left a legacy that continues to influence economic outcomes. It also shows that institutional enforcement characteristcs and informal institutions matter for economic outcomes. State weakness leads to an institutional framework characterized by enforcementthat is non-existent, arbitrary, preferential, or opportunistic. The result is heterogeneity of institutional experiences that depend not only on business-government relationships, but also changes in the external environment, changes in personnel within government, poorly codified laws, and weak monitoring and enforcement mechanisms.