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Improving the business environment has been a major aim of Myanmar's reforms. However, the formal and informal economic institutions that govern exchange and shape the business environment changed significantly under a half-century of socialist and military government. The socialist leadership eliminated many market-supporting institutions made unnecessary because economic activity was to be state planned. Under this framework, personal exchange became dominant and control of economic life widespread. The military government revived market exchange, but many institutions from the socialist era remained and continue to constrain private business today. Thus, the strict economic controls, arbitrary policy-making and lack of processes that affect businesses in present-day Myanmar have direct institutional links with former regimes. They distort the structure of the economy, incentivize clustering in particular sectors and promote the use of networks and personal exchange. As other countries have shown, successful reform is a long process requiring more than changes in the formal institutions of regulation.
Keywords: Business environment, Myanmar, New Institutional Economics, economic development, Burma.
I. Introduction
Since Myanmar's transition began in 2011, one of the key elements of the economic reform agenda has been building a more efficient and competitive business environment. A good business environment, of which institutions are a key part, is essential for developing the private sector. Myanmar's new government has reformed a number of formal regulatory institutions, including the foreign exchange regime, the Central Bank, the Foreign Investment Law (FIL) and trade licensing. These changes have raised expectations about the depth and breadth of reforms in the country, and their potential to spur economic development. Yet changes in the day-to-day realities of doing business have been only modest because many formal institutions from previous regimes remain, as do the informal economic institutions.
This paper examines two questions: How were Myanmar's economic institutions shaped by the socialist and military regimes; and how do these institutions - both formal and informal - affect the present-day business environment? Centralization and control were key aspects of military and socialist economic governance. Arbitrary or reactionary policy-making was common, often due to unforeseen economic challenges or previous policy missteps. Under the socialist regime, the formal regulatory institutions that facilitated market-based transactions were largely destroyed, leaving interactions dependent on networks and characterized by a lack of clear...