Level Of Institutional Development Research Articles

Addressing endogeneity in the relationship between early entry and performance: The case of foreign market expansion

Addressing endogeneity issues has been identified as a key priority for ensuring continued progress in the field of strategic management. We contribute to this research agenda by developing a generalized method of moments (GMM) estimation approach that accounts for endogeneity in dynamic models. To illustrate how endogeneity bias impedes reliable interpretation, we examine the relationship between early mover strategies and performance using data on multinational enterprises entering transition economies. Our empirical results demonstrate that early mover advantages are significantly greater after controlling for endogeneity. Additionally, we find evidence that the level of institutional development weakens the advantages of pursuing an early mover strategy in transition economies. After accounting for endogeneity, the negative moderating effect of institutional development is far more pronounced. The magnitude of these two biases underscore the necessity for scholars to adequately address endogeneity and how GMM estimation can facilitate in better understanding the performance implications of strategic choices.

Not following the script: When institutional development is uneven

AbstractThree characteristics of developed twenty‐first century countries are high levels of state capacity, democracy, and economic freedom. This article compares countries that lack one of the characteristics with countries that have more even levels of institutional development. Countries which lack democracy use other means to secure political legitimacy, and those without strong states are geographically concentrated in Latin America and eastern Europe. Those without liberalised economic institutions are an idiosyncratic group that have unconventional historical paths. These findings speak to the prospects for development outside the liberal democratic path, the nature of development in the absence of a state, and unexplored determinants of economic freedom.

Bavaria's external relations

Importance. The current state of Bavaria’s foreign relations and their main problems are considered, and ways to solve them are proposed. A special emphasis is placed on the role of Bavaria in solving the federal tasks of Germany in the field of foreign policy, for this purpose the concept of auxillary paradiplomacy by Y.G. Akimov is used. The relevance of the study is dictated by the lack of work in the scientific field representing a relevant and modern analysis of the state of Bavaria’s foreign policy. The purpose of the research is to update the study of Bavaria’s foreign relations at the present time. The high level of institutional development, the complexity and interconnectedness of the implemented programs at the level of this federal state are emphasized.Materials and Methods. The main materials are the official Ministries websites of Bavaria and representatives of the Land abroad, as well as reports of the EU commissions on interregional cooperation. To solve the tasks set, the institutional method is used in the context of considering the main actors of Bavaria’s foreign policy and their functions, as well as the “case-study” method for analyzing cooperation between Bavaria and the Czech Republic.Results and Discussion. Using the example of the Strategy for the Development of Relations between Bavaria and the Czech Republic from 2019, the multifactorial nature of Bavaria’s external relations, as well as a well-thought-out institutional design of cooperation, are demonstrated.Conclusion. The Bavarian model can be successfully implemented in other regions (including Russia) seeking greater global cooperation. This model is contrasted with the traditional model of development of external relations of subnational actors, focused mainly on trade; its advantages are emphasized.

Professional experience of CEOs in industry associations and corporate green innovation-empirical evidence from China

This paper provides a theoretical explanation for how the professional experience of CEOs in industry associations impacts corporate green innovation, with data on the professional experience of CEOs in industry associations collected manually to perform an empirical analysis on the annual observation data of Chinese listed companies from 2007 to 2021. The results show that there is a positive correlation between the professional experience of CEOs in industry associations and corporate green innovation, and this positive correlation is more significant in regions with higher levels of institutional development and enterprises with CEOs with professional experience in industry associations with higher administrative levels and CEOs with experience of green innovation. Tests of action mechanisms have further verified that the professional experience of CEOs in industry associations is conducive to shaping environmental awareness and ethics and alleviating perceived uncertainty of economic policies and financing restrictions, thus promoting green innovation activities among enterprises.

Large state-owned shareholders and cash holding: Evidence from family firms

This paper investigates the effect of large state-owned shareholders on cash holding in family firms. Using a large sample of Chinese listed family firms for 2012–2022, we find that large state-owned shareholders positively impact cash holding in family firms. The finding remains valid to a battery of sensitivity tests and is attenuated for family firms with higher control power of the controlling shareholder, family firms originating from the privatization of state-owned enterprises, and family firms located in regions with lower levels of institutional development. Economic mechanism tests show that large state-owned shareholders increase cash holding in family firms by reducing related-party transactions and perk consumption. These findings support the view that better corporate governance may increase corporate cash holding and suggest that state-owned ownership is an essential variable in the predictors of cash holding in family firms.

Digital financial development and inefficient investment: a study based on the dual perspectives of resource and governance effects

As one of the most crucial domains within the digital economy, digital finance has garnered significant attention due to its impact on firms. This study empirically examines the influence of digital finance on inefficient investment, using a sample of Chinese non-financial firms from 2011 to 2019. Results show that digital finance effectively mitigates firm inefficient investment, with a more pronounced effect observed in non-state firms and those operating in regions with higher levels of institutional development. Mechanism analysis demonstrates that digital finance mitigates inefficient investment through resource and governance effects. Further analysis shows that the breadth of coverage, use depth, and digital support services of digital finance all contribute to reducing inefficient investment. Moreover, digital finance enhances the willingness and ability of firms to invest and improves their overall investment levels. These results provide evidence for the positive impact of digital finance in mitigating inefficient investment.

Estimation of the Extent of the Vulnerability of Agriculture to Climate Change Using Analytical and Deep-Learning Methods: A Case Study in Jammu, Kashmir, and Ladakh

Climate stress poses a threat to the agricultural sector, which is vital for both the economy and livelihoods in general. Quantifying its risk to food security, livelihoods, and sustainability is crucial. This study proposes a framework to estimate the impact climate stress on agriculture in terms of three objectives: assessing the regional vulnerability (exposure, sensitivity, and adaptive capacity), analysing the climate variability, and measuring agricultural performance under climatic stress. The vulnerability of twenty-two sub-regions in Jammu, Kashmir, and Ladakh is assessed using indicators to determine the collective susceptibility of the agricultural framework to climate change. An index-based approach with min–max normalization is employed, ranking the districts based on their relative performances across vulnerability indicators. This work assesses the impact of socio-economic and climatic indicators on the performance of agricultural growth using the benchmark Ricardian approach. The parameters of the agricultural growth function are estimated using a linear combination of socio-economic and exposure variables. Lastly, the forecasted trends of climatic variables are examined using a long short-term memory (LSTM)-based recurrent neural network, providing an annual estimate of climate variability. The results indicate a negative impact of annual minimum temperature and decreasing land holdings on agricultural GDP, while cropping intensity, rural literacy, and credit facilities have positive effects. Budgam, Ganderbal, and Bandipora districts exhibit higher vulnerability due to factors such as low literacy rates, high population density, and extensive rice cultivation. Conversely, Kargil, Rajouri, and Poonch districts show lower vulnerability due to the low population density and lower level of institutional development. We observe an increasing trend of minimum temperature across the region. The proposed LSTM synthesizes a predictive estimate across five essential climate variables with an average overall root mean squared error (RMSE) of 0.91, outperforming the benchmark ARIMA and exponential-smoothing models by 32–48%. These findings can guide policymakers and stakeholders in developing strategies to mitigate climate stress on agriculture and enhance resilience.

Interaction of inflation and corruption in developing markets in the context of technological changes

Corruption being a multi-layer phenomenon has its direct and indirect effects on the economic life in different spheres. Taking into account this circumstance, we made an attempt to reveal the existing connections and dependence between corruption and inflation. Data of 161 countries were included in the carried-out analysis on inflation, corruption perceptions index (CPI), control of corruption index (COC), as well as Freedom of Corruption Index (FFC), whereas the countries have been divided into four large groups according to per capita GDP. Modern tendencies of the given groups of countries having strong foundations of institutional control or corruption «restraints» have been studied in this context. The correlation analysis has been carried out to study the dependence of corruption and inflation according to income groups. Research of previous experiences and results of the carried out analysis indicate that implementation of the efficient policy aimed at control of manifestations of corruption presumes some high level of institutional development in countries. Results of the correlation analysis prove the inverse relationship between corruption and inflation as well as its weaknesses for all income groups in countries.

Environmental impacts of green bonds in cross-countries analysis: a moderating effect of institutional quality

PurposeThis paper aims to investigate the impacts of green bond issuance on the environment while taking into account the moderating role of issuing countries’ institutional quality.Design/methodology/approachThe analysis is based on a longitudinal data set covering 171 countries and territories during 2007–2018. The authors rigorously account for endogeneity issues using two-stage least squares estimation and a set of instrumental variables for green bond issuance volume.FindingsThe overall results confirm the positive environmental impacts of green bonds in reducing carbon dioxide and greenhouse gas emissions, enhancing renewable energy consumption rate and accelerating the progress towards sustainable development goals (SDGs). However, these effects are contingent upon the levels of institutional development of the issuing countries in a way that green bond issuance only benefits the environment when the institutional quality has reached a minimum level.Practical implicationsThe results provide important policy implications for countries in their efforts to prevent environmental degradation and achieve SDGs.Originality/valueThis paper contributes to the existing literature by providing a macro-level evaluation of the environmental impact of green bonds, hence, enabling policy implications to be drawn for countries to achieve their SDGs. The analysis is more comprehensive using a wide range of indicators for environmental performance. To the best of the authors’ knowledge, this paper is also one of the first attempts to examine the moderating effect of institutions on the environmental impact of green bonds.

Foreign ownership, bank efficiency and stability: Whether the institutional quality of countries is important?

AbstractThis article is aimed to investigate the extent to which the home and host countries' institutional quality helps explain the efficiency and stability differences between the domestic and foreign banks operating in Tunisia and Morocco over the 2005–2017. For this purpose, a simultaneous equations approach was considered to investigate the dynamics between efficiency and stability. Our framework follows the premise that stability is endogenously related to efficiency only for Moroccan banks' sample when models' estimation has been administered considering each country separately. The findings reveal also the persistence of a positive effect of foreign ownership on bank efficiency, highlighting that banking efficiency need be effectively sustained with a reasonable level of institutional development. Moreover, the institutional differences characterizing the home and host countries has a negative impact on the foreign banks' stability. Accordingly, policy makers in the Great Maghreb area could well aspire to enhance foreign ownership in their banking sector, on the ground that it helps remarkably in improving corporate governance and boosting efficiency, given mainly the acquired technical advantages often associated with their developed home countries. The generalized moments method estimator outlines the persistence of a noticeable banking inefficiency and stability, with a significant effect of the stability variable on banks' inefficiency and performance, suggesting that banking‐efficiency boosting policies might well ultimately guide and veer management choices towards less risky investments.

The institutional determinants of outward foreign direct investment

Abstract This study focuses on the influence of institution quality on foreign direct investment (FDI) outflows. For empirical estimation, we use a dataset covering 102 home and 67 host countries from 2001 to 2016. We use the gravity approach and apply the Poisson pseudo maximum likelihood method to derive unbiased estimates. A set of institutional variables in a country is integrated into a single institutional index using principal component analysis. Our main findings are the following. First, we only identify a positive influence of the level of institutional development on FDI outflows for the institutionally developed countries. Second, we have not found evidence for crowding out national investment in the countries with weak institutions. Third, increases in the level of institutions stimulate horizontal rather than vertical outward FDI in an economy. Finally, institutional distance negatively affects the level of outward FDI only when the institutional distance between the two countries is large. The policy implications of this research are strongly in favour of further developing institutions.

Crossing Boundaries: Internationalization and Industry Switching in Response to Performance Feedback

Why do firms cross geographical or industry boundaries, initiating internationalization or industry switching? To address this question, I combined the behavioral theory of the firm with the resource-based view, while considering the boundary conditions of the institutional environment and industry competition. I found that high-performing firms are more likely to initiate internationalization, while low-performing firms tend to switch industries. Furthermore, high institutional development level and high industry competition attenuated the propensity of internationalization, whereas high industry competition accentuated the tendency of switching industries. Results based on census data containing 54,393 local industrial enterprises in China from 2007-2013 support my predictions.

Drinking poison to quench thirst: Does bribery foster firm performance in China?

Whereas the damage of bribery on economic development is well recognized, controversy exists regarding whether it can benefit firm-level performance. By integrating the “grease” and “sand” views of bribery, this study offers the novel proposition that even though bribery may provide a means to deal with institutional voids, such that it fosters firms’ short-term performance (i.e., sales growth), it hinders long-term performance reflected in market capitalization. Moreover, the positive effect of bribery on sales growth decreases and its negative impact on market capitalization increases when the level of institutional development is higher. A longitudinal data set of Chinese listed firms lends strong support to our predictions, which in turn offer novel insights into bribery and its performance implications.

INSTITUTIONS AND THEIR IMPACT ON THE ECONOMIC DEVELOPMENT: MIDDLE INCOME TRAP

The article is devoted to the study of the relationship between institutional and economic development of post-socialist countries. The author substantiates the relevance of the chosen topic for post-socialist countries, describes the essence and features of the middle income trap and explains the economic and institutional basis for its formation. The dynamics of economic development of 24 post-socialist countries for the period 2007-2020 is analysed based on World Bank data. Clustering by the method of k-means is made based on this analysis also. The interdependence between the level of institutional development and the level of economic development of the analysed countries was revealed by analysing the institutional indicators (international property rights index and corruption perception index) of post-socialist countries in 2020, which confirmed the main hypothesis of the study. The author describes the essence of the dysfunctional phenomenon of the institutional development paradox and its role in the institutional development of post-socialist countries in the context of overcoming the middle-income trap. It is established that the institutional dysfunctions formed in the transformation period continue to hurt the development of economic systems, including the economy of Ukraine. Based on the results, the author proposes practical recommendations for further implementation of the necessary institutional reforms aimed at avoiding the middle income trap economy of Ukraine. They include measures to further liberalize the economy, improve mechanisms to protect property rights, combat corruption and more.

Does Subnational Region Matter? Taiwanese Subsidiaries Performance in Mainland China

In researching for corporate performance as described in the main source of theme literatures, current researches presume that countries have the same environment in different regions within a country regardless if it is the environment of one country or multiple countries in which does not consider the impact of regional influences on firm performance. This paper collects data from Taiwan’s conglomerates in mainland China as a sample, which decomposed subsidiary performance into industry effects, regional effects, parent company effect, subsidiaries effects and annual effects to analyze the source of performance variance. Studies have shown that regional factor is one of the important factors affecting the performance of subsidiaries and regional effects and industry effects jointly affect the performance of the subsidiary. In the comparative study of the different regions, we find that in the explanation of company performance variance, the internal effects (the parent company and the subsidiary effects) are more important in a higher level of institutional development of the region (Yangtze River Delta (YRD)); on the contrary, the external effects (regional and industry effects) are more important in a higher level of institutional development of the region (Pearl River Delta (PRD )).

Whose Children? Extracurricular Education in the Countries of the Former Soviet Union

The system of extracurricular education in the Soviet Union had a high level of institutional development and sustainability, which ensured universal coverage of children with extracurricular activities and their accessibility. After the collapse of the USSR, the former Soviet republics built extracurricular education sectors based on Soviet heritage and the search for national identity in the organization of extracurricular time for children and their upbringing. This study compares the current state of extracurricular education sectors in all 15 countries of the former Soviet Union. The results of the analysis of models of their institutional transformation, which leads to meaningful and systemic changes in the state’s and society’s attitude to children’s extracurricular time, are presented.

Institutional threshold in the nexus between financial openness and TFP in Africa: A dynamic panel analysis

The challenge of “growth without development” in most developing countries particularly in the African region has brought to fore the discussion of the effects of macroeconomic policies on the key determinants of growth, namely Total Factor Productivity (TFP). This study investigated the threshold or sustainable level of institutional development necessary for financial openness to stimulate TFP growth by employing a Dynamic Panel Threshold Model (DPTM) for the panel of 28 selected African countries from 1996 to 2019. The findings showed that there exists a threshold or sustainable level of institutional development (4.73 out of 10-points scale) which African countries must attain to reap the full benefits of financial openness in terms of TFP growth because the quality of institutions in most African countries are pervasively weak and poorly developed to checkmate excesses, corruptions and political interferences in the financial markets. Therefore, the study recommended that there should be a deliberate attempt by relevant authorities to block all inherent loopholes in the institutional settings of African countries which give room for shady dealings in the financial markets, to ensure institutional environments (political, legal, regulatory, and economic institutions) are healthy enough to absorb the negative influence or the risks associated with financial openness that may hinder growth and development in the long-run by hindering TFP growth. • Interconnectedness of the world economy has moved financial openness to the limelight of academic discourse. • TFP describes the variable that accounts for change in output that does not depend on factor inputs such as labour and capital. • Financial openness is the integration of the financial activities and transactions into global financial markets. • Benefits of financial openness cannot be internalized to improve TFP without good quality institutions. • Threshold or sustainable level of institutional development in Africa. • Dynamic Panel Threshold Model (DPTM) proposed by Seo and Shin (2016) and used by Seo et al. (2019)

An empirical analysis of government interventions in ECOWAS: evidence from dynamic panel threshold

Purpose The study examines whether the growth effect of government spending is contingent on the level of institutional environment prevalent in Economic Community of West African States (ECOWAS). Design/methodology/approach The study adopts the more refined and more appropriate dynamic threshold panel by Seo and Shin (2016) and made applicable be Seo et al. (2019). The technique models a nonlinear asymmetric dynamics and cross-sectional heterogeneity simultaneously in a dynamic threshold panel data framework. Findings The results show that there is a threshold effect in the government spending-growth relationship. Specifically, the authors found that the impact of government spending on economic growth is positive and statistically significant only above a certain threshold level of institutional development. Below that threshold, the effect of government spending on growth is insignificant and negative at best. The findings suggest that government spending-growth nexus is contingent on the level of Institutional quality. Originality/value Unlike previous studies that adopt the linear interaction model which pre-impose a priori conditional restrictions, this study adopts the dynamic threshold panel framework which allows the lagged dependent variable and endogenous covariates.

Institucionalno okruženje i FDI u uvjetima pandemije COVID-19 na primjeru Republike Hrvatske

Pandemija COVID-19 prouzročila je dosad nezabilježene promjene u ponašanju pojedinaca i ekonomskih entiteta koje su potom dovele do usporavanja gospodarskog rasta gotovo svih zemalja svijeta te do realne prijetnje nastanka ekonomskih kriza čija će trajanja i pojavni oblici ovisiti o karakteristikama te dosadašnjim performansama pojedinih nacionalnih ekonomija. Nepredvidivost te posljedična neizvjesnost budućih ekonomskih parametara dovode do suzdržavanja i smanjivanja investicija, kako domaćih tako i stranih što povratno djeluje na daljnje smanjivanje stopa rasta. Iskustva su pokazala da su zemlje s većom razinom institucionalne razvijenosti uspijevale brže i učinkovitije prevladati gospodarske krize, dok su u zemljama s lošim institucijama krize trajale dulje i imale su obilježja perzistentnosti. Hrvatska je posljednjih nekoliko desetljeća prolazila kroz institucionalnu stagnaciju što se odrazilo na ekonomsko zaostajanje za bivšim tranzicijskim zemljama na brojnim gospodarskim područjima, uključujući i privlačenje kvalitetnih izravnih stranih investicija. S druge strane, zbog svojih specifičnosti krizna su vremena pogodna za provođenje institucionalnih promjena i za ubrzani institucionalni razvoj. Autorica istražuje razinu institucionalne razvijenosti u Hrvatskoj te mogućnosti za akceleraciju institucionalnog rasta u kontekstu budućeg privlačenja stranih investicija i djelovanja na budući rast gospodarstva.

Immigration, diversity and institutions

AbstractThis paper examines the relationship between immigration and host countries' institutional quality, using international migration data for a sample of 130 countries over the 1990–2015 period. We employ two composite metrics of political institutions, encompassing multiple dimensions of governance. To reduce endogeneity concerns, related to immigrant settlement patterns, we employ pseudo‐gravity‐based instruments in a 2SLS setting. Overall, our findings withstand several robustness checks and suggest that immigration has a negative and statistically significant impact on the level of institutional development of the countries analyzed in this study. However, there is substantial heterogeneity, since the impact of migrants appears to be somewhat stronger in less developed host countries. Interestingly, these findings are entirely driven by migrants stemming from countries displaying low institutional development.