4M: Four-Markets Analysis for Emerging Economies

By: Eric Werker

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Synopsis: This technical note describes a methodology for evaluating the political economy of business-government relations in an emerging or frontier economy. The note argues that there are not one but four markets in an emerging economy: the market of "rentiers" such as mining companies that earn profits by maximizing rents in the export sector, "powerbrokers" that use monopoly power and government relations in regulated industries to earn outsized profits selling domestically, "workhorses" that operate in largely competitive (and familiar) sectors serving domestic customers, and "magicians" that rely on country-specific advantages including special treatment and incentives to export in competitive sectors. Firms operating in each of these markets require a different strategy; moreover, each market requires a different approach for regulation and private sector development. If we look at the mix of business activity across these four markets in a country, we can better understand the nature and trajectory of business-government relations.