Enclave Economies and Political Connections of Big Business in Emerging Market Countries

Abstract

Relationship between enclave economies functioning and political connections using by large businesses in emerging markets countries is considered in the article. Enclave economies have their origins in the colonial past of these countries, and these political and economic systems make it difficult to transfer to a model of linkages economy. Linkages economy is characterized with the presence of multiplier effect that ensures the production of high-tech in manufacturing industries, the emergence of small innovative enterprises, the formation of demand for human capital in the field of research and development. On the contrary, enclaves of wealth represent that part of the economy that is embedded in global value chains, but does not work to form domestic markets, does not provide basis for the development of high added value manufacturing industries, blocks the emergence of fast-growing companies from the innovation sector, and the directions of human capital investments are determined precisely with the extraction of natural and mineral resources. The everlasting existence of enclave economies is grounded by special interest groups including representatives of the ruling elites and politically connected firms. Access to wealth enclaves is linked with certain privileges for politically connected firms. Mineral rents can be used by the ruling elites as a source to set patronage sinecures that to strengthen existing regimes.