Connectedness and Inequitable Access to Formal Financing in Uzbekistan

Abstract The belief that a centrally planned system results in wastefulness whilst a market-based system yields an efficient allocation of resources was central to post-Communist economies’ decisions to transform from a centrally planned to a market-based system. While this belief may well be true in principle, various inefficiencies also occur in market-based systems, particularly in the provision of financial services to businesses. For example, empirical research clearly demonstrates that the distribution of formal financing skews towards larger enterprises and against younger and smaller firms in market-based economies. Conventional explanations for this apparent inefficiency emphasise market and information imperfections as the major causes of misallocation. Yet, more recent studies show that institutional and political factors can also play an important role in resource allocation, which also affect economic outcomes: formally, through rules and regulations; and, informally, through individual political connections and interpersonal relations. A vital implication of this view is that political connectedness, which is interpersonal and exclusive in nature, also leads to inefficiencies in the distribution of formal financing. Building upon this understanding, this chapter investigates the impact of interpersonal connections on the inequitable distribution of formal financing in Uzbekistan.

Hali tarjima qilinmagan