Purpose: In the process of fostering economic development, many governments, especially those of a small economy, such as Singapore, Taiwan, and Hong Kong, had taken a leading role in managing their economies, in spite of the free-market rhetoric that some of them have made. The purpose of this paper is to examine the reasons and the effects of government involvement in the economy. Design/methodology/approach: In this paper, the causes and effects of cooperation and conflict between government and business in economic development are examined from a theoretical perspective, particularly with references made to East Asian economies. Findings: Government interventions lead inevitably to both cooperation and conflict with the private sector. Practical implications: The strategies for dealing with problems arisen from such relationship are also examined. Originality/value: This paper links the theories and concepts from a variety of sources to offer a coherent picture of business-government relationship that is helpful for examining other studies on this topic from a broad perspective.