This paper looks at how private support institutions influence the growth of small and medium enterprises (SMEs) in sub-Saharan Africa. It examines the factors stimulating the development of such institutions, as well as the approach's limitations and the policy implications.

The authors argue that sub-Saharan African SMEs deal with market failures and weak public institutions by developing private governance systems in the form of long-term business networks. The support provided by these networks raises the technological performance of network 'insiders'. But they also impact local firms outside the network, who have little access to productive resources and become excluded from business transactions.

The authors recommend policy reform to encourage cooperation between firms, mitigate the adverse effects of networks on local companies and develop formal institutions to help govern market exchange.


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