Impact Of Institutional Quality Research Articles

The impact of institutional quality on foreign direct investment inflows: evidence for developed and developing countries

This study examines the impact of institutional quality on foreign direct investment (F.D.I.) by categorising the countries as developed or developing. We measured institutional quality by the sum of control of corruption and rule of law indicators. We provide evidence that institutional quality positively and significantly impacts F.D.I. in developed countries; specifically, we find that a one standard deviation change in governance significantly affects F.D.I. by a factor of 0.2225 (using common law and the lagged values of the independent variables as instruments). Ceteris paribus, the results for the developing countries demonstrate that the institutional quality impact is insignificant because of the weak structure of institutions. Result findings strongly support the significance of governance indicators in attracting F.D.I. inflows. From our results, we infer that the relevance of governance indicators tends to be a key point in attracting F.D.I. inflows.

The Impact of Institutional Quality on Economic Performance: An Empirical Study of Turkey and 28 Countries in the European Union.

Using a panel set of 28 European Union member states and Turkey over a period of 1995-2014, this paper examines to what extent institutional quality (economic freedom index) and its sub-indicators (rule of law, regulatory efficiency and market openness) can influence overall economic performance measured by gross value added per capita. The paper expands on existing literature by disaggregate the growth impact of institutions for all countries in the sample, high income and low income countries. The independent variables included in the model are gross fixed capital formation as a percentage of GDP, trade openness, government size, quality of institution, inflation and human capital while gross value added per capita is the dependent variable. Generally, the results show a positive and significant relationship between economic performance and the quality of institution. Precisely, a 1 per cent improvement in institutional quality is predicted to have an effect of increasing gross value added per capita by 1.092 per cent holding other things constant. However, decomposing countries according to their level of economic development the results reveal that the impact of institutional quality on economic performance is more pronounced in middle income countries than high income countries. Moreover, there is significant evidence that improvement of regulatory efficiency promotes economic performance for all countries and countries at different levels of development. Given these differences in the impact of institutional quality on economic performance across countries and also by institutional category this implies that different countries require different institutional settings to foster their growth.

Corruption and Entrepreneurship: Cross‐Country Evidence from Formal and Informal Sectors

While the impact of institutional quality on formal entrepreneurial activity has been well documented in the literature, whether and to what extent corruption influences entrepreneurship in the informal sector is less forthcoming. In this article, we analyze the effect of corruption on entrepreneurship in the formal and informal sectors. Using unique cross‐country data on formal and informal entrepreneurship, we find that corruption deters entrepreneurship in the formal sector and promotes informal entrepreneurship. These results remain robust even after conducting a series of sensitivity analyses.

Is Tinkering with Institutional Quality a Panacea for Firm Performance? Insights from a Semiparametric Approach to Modeling Firm Performance

AbstractThere is a large and growing literature on the impact of institutional quality on economic performance and the broad consensus is that “good” institutions facilitate better economic performance. The literature that provides micro‐level support for the policy discourse about institutional quality does not, however, account for significant intra‐country variation in reactions of firms to changes in business environments, even within the same industry, and it generally ignores the possibility that the impact of institutional quality on firm performance may not be neutral. In this paper, we analyze the impact of institutions on firm performance using an approach that enables us to overcome these problems with the stylized approach. Using cross‐country firm‐level data, we demonstrate that not only does the marginal impact of institutional quality vary significantly within countries, but also that the impact is economically significant only at the two extremes of the distribution. We view this as prima facie evidence that policies that tinker with institutional quality on the basis of the popular wisdom about the impact of these institutions on the average firm may not have the desired or expected impact, at least at the micro level.

The Impact of Institutional Quality and Efficient Cohesion Investments on Economic Growth Evidence from Italian Regions

Literature stresses that efficient institutions are necessary to achieve the highest returns from public policies. It has been recognized by the European Union (EU) that regional institutions have a fundamental role in obtaining the highest results from Cohesion and Structural investments, which represent the main fiscal and anticyclical instruments available for the regions. The paper aims at analyzing the impact of the quality of regional governments, and their management of EU cohesion funds on the economic growth of Italian regions. In order to measure the quality of institutions, we have combined the Institutional Quality Index (IQI) with a set of efficiency indexes, calculated in order to evaluate the ability of regional policymakers to manage European Funds. We conduct a two-way fixed effect panel regression model during the period between 2007 and 2015. The results underline that, in general, Cohesion investments and IQI are positively related to the regional growth; instead, efficiency indexes are important key factors mainly in the Southern area, characterized by structural weaknesses.

Quality of Institutions and Violence Incidence: a Cross-Country Analysis

This paper utilizes two alternative econometric strategies to test the hypothesis that countries with poor institutional arrangements create an environment with increased impunity, thus providing incentives for potential law-breakers to engage in criminal activities that lead to rapid contagion of violence. Several measures of institutions including legal, political, market, government, and sociocultural institutions are considered in the paper. The empirical analysis provides evidence that the impact of institutional quality on violence is important regardless of income levels. This finding implies that differences in quality of institutions explain why countries with similar levels of income per capita may have different rates of violence and crime. In addition, the results show that quality of institutions matter for a successful long-term strategy to reduce violence.

Institutional quality and new firm survival

AbstractThe existing literature on firm survival focuses almost exclusively on firm‐ and industry‐level determinants. What is generally overlooked, albeit extremely important for firm survival in developing countries, is the impact of institutional quality. Using data from manufacturing firms in China for the 1998–2005 period, we find that institutional quality has a significant and positive impact on the survival of private enterprises. Specifically, a one‐standard‐deviation increase in the security of property rights protection leads to an 8.8 percent decrease in the hazard rate of private enterprises. Our results are robust to the inclusion of control variables and to various checks.

Institutional Determinants of Bilateral Trade: An Analysis According to Product Type

Formal trade barriers and transport costs explain only part of the resistance to international trade. Search costs on the international market and insecurity of property rights and contract enforcement have recently been emphasized as important intangible barriers to trade. This paper proposes that the impact of institutional quality on bilateral trade varies depending on the type of product that is being traded. Distinguishing between homogeneous and differentiated product groups, we estimate gravity equations to investigate how trade patterns are affected by variation in the quality of institutions across countries. The results show that institutions matter most for trade in differentiated goods. This variation in the importance of property security for trade underlines the relevance of search costs and other transaction-specific investments for understanding variation in bilateral trade patterns.

Political discretion and corruption: the impact of institutional quality on formal and informal entrepreneurship

This paper analyses the impact of political discretion and corruption on firm creation rates, distinguishing between formal and informal entrepreneurship. The results show that political discretion discourages the creation of formal enterprises as fewer restrictions on the government's opportunistic behaviour increases uncertainty and risks for entrepreneurial activities. Corruption also has a negative influence on formal entrepreneurship, as it increases the costs of the procedures required to create and manage the company with no assurance that the other party will fulfil the agreement. Regarding informal entrepreneurship, our results show that the negative impact of corruption also applies to non-formalised firms.

Political discretion and corruption: the impact of institutional quality on formal and informal entrepreneurship

This paper analyses the impact of political discretion and corruption on firm creation rates, distinguishing between formal and informal entrepreneurship. The results show that political discretion discourages the creation of formal enterprises as fewer restrictions on the government's opportunistic behaviour increases uncertainty and risks for entrepreneurial activities. Corruption also has a negative influence on formal entrepreneurship, as it increases the costs of the procedures required to create and manage the company with no assurance that the other party will fulfil the agreement. Regarding informal entrepreneurship, our results show that the negative impact of corruption also applies to non-formalised firms.

The Institutional Quality Impact on Remittances in the ECOWAS Sub‐Region

AbstractThe paper seeks to examine the impactful role of institutions in attracting remittances inflow to ECOWAS region for the period 1996–2013. In a bid to achieve this key objective, a system generalized method of moment (GMM) is adopted on a panel dataset in which insightful outcomes emanate. The results reveal an appreciable impact of institutional infrastructures on the migrants’ remittances in the region. More specifically, institutional measures of governance appear to act as a spur on remittances, but other institutional decompositions like economic and political governance structures constitute avoidable drags, judging by theoretical priors and statistical levels of significance. These results remain valid to the exclusion of the francophone countries from the original dataset. On the policy front, the overall target is for government to formulate policies that seek to address the symptomatic causes of low inflow of remittances into the region, with special focus on the institutional dimension of the governance framework. Among the auxiliary policy targets include those that would address the problems of dysfunctional institutions, as well as those that would deepen financial systems and engender improved growth of GDP per capita. The study also makes some suggestions for future enquiries.

The impact of institutional quality on social networks and performance of entrepreneurs

Entrepreneurs exert much effort in pursuit of new ideas that can lead to innovations. Relevant knowledge and resources can often be found outside an entrepreneur’s immediate competencies and expertise. For this reason, entrepreneurs use social relations to get access to these resources. This paper analyzes the role of such social relations when it comes to entrepreneurial performance; it also explores how entrepreneurial choices regarding social networks depend on the quality of the institutions for whom they work. Low-quality institutions create environmental uncertainties that have significant effects on an entrepreneur’s strategic choices and the usage and usefulness of their social networks. This paper uses cross-sectional survey data from entrepreneurial firms in the Middle East and North Africa to show that institutional context directly influences various characteristics of entrepreneurial network choices and that it also affects the relevance of strong and weak ties with significant impact on entrepreneurial performance.

The Composite Impact of Institutional Quality and Inequality on Economic Growth

The relationship between institutions and economic growth has attracted significant attention in recent years with the dominant view being that institutional quality positively influences economic performance of a country. However, the impact of similar kind of institutions on economic growth varies across regions and countries. Various reasons including, Income inequality and ethnic fragmentation have been put forth as proximate cause of the weaker relationship between institutions and economic growth [Easterly, et. al (2006); Ann-Sofie (2007)]. However not enough literature is available on why the impact of similar set of institutions on growth varies across countries and regions. Given that inequality may weaken the impact of institutional quality on growth, this study seeks to examine the composite impact of institutional quality and inequality on growth in selected Asian economies

Institutional Determinants of Investment Inflows into Transition Economies

This article investigates the relationship between institutional quality and the level of investment inflows into post-communist countries. We attempt to empirically verify the argument that institutional determinants are essential in explaining the variation in investment inflows into transition economies after the demise of socialism in the early 1990s. The role of institutions is assessed using Economic Freedom indices provided by the Heritage Foundation. Consequently, to investigate the progress of institutional quality in transition economies, we further employ indicators developed by the European Bank for Reconstruction and Development. Using a panel data set for 11 transition countries from 1993 to 2013, we conclude that the impact of institutional quality on investment inflows is not negligible, yet much weaker than suggested by the existing theoretical literature. Using a fixed-effects model framework in both regression benchmarks with metrics from the Heritage Foundation and the European Bank for Reconstruction and Development, respectively, we observe that the impact of institutional variables on the level of investment was less significant than expected. Moreover, macroeconomic fundamentals appear to always play a more substantial role than institutional factors.

The Dynamics of Offshoring and Institutions

Abstract Previous research has found that weak institutions can hamper investment and alter patterns of trade. However, little is known about the impact of institutional quality on offshoring. This lack of knowledge is surprising, given that offshoring has become an important part of many firms’ internationalization strategies. This study uses detailed firm-level data for the 1997–2005 period to examine the relationship between institutional quality in 113 source countries and offshoring by Swedish firms. The results suggest that weak institutions are negatively related to offshoring in general and to the offshoring of R&D- and relationship specificity-intensive inputs in particular. An analysis of learning effects suggests that the impact of weak institutions on the offshoring of relationship specificity-intensive inputs vanishes when firms return to countries from which they have previous market experience. Our results are robust to the use of various measures of institutional quality.

Analysis of the quality of BasicSocial and Economic institutions That FormEnvironment of Small Business development

The results of the statistical analysis of institutional quality impact on the rate of small business’ development in the regions of the Russian Federation are presented in the article. The methods of correlation analysis, multi-dimensional medium, card positioning have been used in the study. The sample included all the subjects of RF, except for Moscow and St. Petersburg. The author concludes that the regions are poorly differentiated according to the quality of institutions and in a medium degree - with respect to density distribution of SB. It is shown that SB does not affect the development of middle class in Russia. Every third region has institutional quality and density distribution of SB below the average.

Effects of Regulatory Governance on Indian Thermal Power Efficiency: Results from a Stochastic Frontier Modeling

This paper tests the impact of institutional quality on the performance of thermal power sector in India. We estimate a translog inefficiency effects stochastic frontier model using plant age, plant capacity and an index of regulatory governance as determinants of inefficiency. The dataset comprises a panel of 77 coal-based thermal power plants during the period 1994-95 to 2010-11. The mean technical efficiency is 76.7% which means there is wide scope for efficiency improvement in the sector. However, this is 4% points higher than previous estimates which measured productivity up to the year 2001-02. Results are robust to various model specifications and regulatory governance positively impacts plant performance. While technical efficiency is highly sensitive to unbundling of state electricity boards, it is not impacted significantly by the experience of regulators. The policy implication is that the quality of regulatory capacity and experience need to be enhanced for the desired sectoral performance.

The impact of institutional quality on initial public offerings

Country-level institutional quality is positively correlated with the underpricing of initial public offerings (IPOs). The association is strong for IPOs issued in developed markets, but absent for emerging-market IPOs. We hypothesize that extra-legal institutions, including financial reporting practices, law enforcement, public trust, and outside monitoring affect the availability and value of private benefits of control accessible to entrepreneurs, which in turn shapes the relation between institutional quality and IPO underpricing. Evidence on the relation between underpricing and post-IPO ownership dispersion is consistent with prior studies that suggest that underpricing is motivated, at least in part, by entrepreneurs’ desire for post-IPO control.

The Impact of Institutional Quality on Initial Public Offerings

The Impact of Institutional Quality on Initial Public Offerings

The institutional determinants of IPO firm prospectus length in a developing context: A research note

This study focuses on the impact of institutional quality on the amount of disclosure in IPO firms listing prospectuses using the six well established World Bank Governance indices, namely corruption control, government effectiveness in promotion of private sector development, political stability and absence from terrorism, regulatory quality, rule of law and lastly democratic voice and accountability. Using a unique hand-collected sample of 165 IPO firms from across Africa from 2000 to 2011 I find evidence that enhanced rule of law and regulatory quality impact on the amount of disclosure by firms, reflected in length of IPO listings prospectuses. In addition I find evidence that founder-led entrepreneurial firms are more likely to disclose more alongside firms in extractive and technology industries that rely on local stock exchanges as a source of external finance. In contrast IPO firms that have significant long term foreign partners or are subsidiaries of foreign Multinational Enterprises are likely to disclose less than other types of firm underscoring their apathy to domestic investors and relative lack of dependence on indigenous stock markets as a viable source of external finance.