Social, Formal, and Political Determinants of Trade under Weak Rule of Law: Experimental Evidence from Senegalese Firms

Journal Article
Published on 12 June 2022
Authors
Abhit Bhandari

The published version of this article can be found here at Comparative Political Studies.

Abstract

How do firms ensure secure exchange when the rule of law is weak and contracting institutions privilege the politically connected? In developing countries, firms may use social, formal, or political heuristics when selecting business partners, but how these factors jointly impact exchange remains understudied. In this article, I develop these theoretical mechanisms and test their impact with a conjoint experiment administered to 2,389 formal and informal firms in Senegal. I find evidence in support of all three theories: To varying degrees, social, state, and political factors simultaneously impact firms’ sense of deal security and likelihood of exchange. The results demonstrate the substantial influence of formal predictors of exchange even in an overwhelmingly informal business environment, and also establish the countervailing effects of political connections on trade. These findings suggest that firms in developing countries must contend with an intricate political calculus to ensure their growth.

Authors

Abhit Bhandari

Columbia University