Low Institutional Quality Research Articles

Nexus between natural resource endowments and economic growth in selected African countries

Africa began implementing the Sustainable Development Goals (SDGs) in 2015 emphasizing on sustainable management and effective use of natural capital to spur economic growth (Goals 12, 14, and 15). This study using World Bank data sets from 46 African countries selected for the years 2000 to 2022, examined the nexus between natural resource endowments and economic growth in Africa. We used the system generalized method of moments (sys-GMM) and dynamic panel threshold regression (DPTR) to analyze the data. The findings of the two-step sys-GMM estimation using 'xtabond2' revealed that when the institutional quality variable is added and excluded from the model, natural resource dependence negatively impacts economic growth, but the impact is greater when the institution is excluded. In the estimation of the interaction variable of natural resource dependence and institutional variable included in the model, natural resource dependence positively impacts economic growth. The results of the DPTR using "xthenreg" showed that when the threshold value of natural resource dependence is ≤ 1.73% of gross domestic product, natural resource dependence has a positive impact on economic growth and a negative impact when the threshold value is above 1.73%. Similarly, when the institutional quality threshold is ≤ 0.277, natural resources dependence impacts economic growth negatively; above the threshold (0.277), the impact is positive. In conclusion, natural resource endowment is a curse with no or low-quality institutions and a blessing with high-quality institutions. Thus, building strong institutions and proper utilization of natural resources helps to minimize the adverse impact of resource endowments on economic growth.

How does corporate investment respond to trade policy uncertainty in China? The role of political connections

This paper investigates how political connections affect the relationship between trade policy uncertainty and corporate investment by utilizing Chinese non-financial firm-level data from 2003 to 2022. We find that trade policy uncertainty inhibits corporate investment by decreasing expected cash flows, increasing cash flow uncertainty, and lowering investment returns. Political connections mitigate the adverse impact of trade policy uncertainty on corporate investment by increasing government subsidies, alleviating financing constraints, and improving investment inefficiency for firms. The results are robust to changing variables measurements, alternating econometric model settings, and addressing endogeneity concerns. We also find the adverse impact of trade policy uncertainty on corporate investment is more pronounced for non-state-owned firms and small-sized firms, and the positive role of political connections benefits firms with higher financing constraints, lacking bank-firm relationships, and regions with lower institutional quality. Our findings highlight that optimizing the business environment and strengthening the communication between firms and governments are crucial for coping with unexpected policy uncertainty shocks.

Transformational Leadership, Perceived Organizational Support Sharing, Organizational Commitment and Employee Performance: the Role of Religiosity

Objective: The purpose of this study is to examine how transformational leadership, knowledge sharing, and perceived organizational support affect organizational commitment and how their effects on performance are influenced by religiosity at Nahdlatul Ulama University in East Java. This kind of study is known as explanatory research. Method: Purposive sampling is the kind of sample strategy that should be applied. 345 samples were successfully obtained for this study. A Likert scale questionnaire was employed as the data gathering method in this investigation. The Partial Least Square (PLS) method was used to analyze the data, and SmartPLS version 3 PLS software was used. Research Findingsand Discussions: The following factors have been found to have a positive and significant impact on organizational commitment: 1) Transformational Leadership; 2) Perceived Organizational Support; 3) Knowledge Sharing; 4) Organizational Commitment has a positive and significant impact on performance; and 5) Religiosity strengthens the relationship between organizational commitment and employee performance. Research Implications: Research implicates poor lecturer performance with low-quality tertiary institutions. Studies must expand focus to include knowledge sharing, organizational support, and leadership to enhance relationships and improve organizational commitment and performance. Originality/Value: The poor performance of lecturers as members of the teaching staff in higher education is inextricably linked to the low quality of tertiary institutions. Numerous studies that have been done only look at a few variables and ignore the importance of knowledge sharing, perceived organizational support, and transformational leadership in maximizing the potential for relationships that are mediated by organizational commitment and moderated by religiosity to improve company performance.

Crude credit: The political economy of natural resource booms and sovereign debt management

Oil, gas, and minerals have notoriously adverse effects on institutional quality. But when global liquidity is high, risk-tolerant investors are more willing to lend to all borrowers, even resource-rich countries with low-quality institutions. Despite the availability of cheaper credit during commodity booms, we argue that countries do not increase current borrowing to mitigate future revenue shortfalls during commodity busts. Instead, they rely on resource windfalls to meet their current financing needs, fearing they would otherwise forfeit national policy discretion to global financial markets. We leverage primary evidence from extensive field research across five Latin American countries to show that national economic officials (i.e. finance ministers and central bank governors) are wary of high indebtedness, after past commodity booms ended in cycles of lofty spending, borrowing, and default. For sovereign borrowers, high bond market indebtedness often reduces government discretion over economic policy, whereas windfalls increase it; all else equal, governments will favor the latter. Using data on 22 Latin American and Caribbean countries from 1996 to 2020, we find that governments issue bonds less frequently, in smaller amounts, as their oil and gas production or GDP share from resource rents increases. These findings make an important contribution to our understanding of how commodity cycles affect global capital markets: sovereign borrowers do not fully leverage commodity booms to expand their fiscal space to finance more spending over time.

Shades of grand corruption among allocative efficiency and institutional settings. The case of Italy

This paper examines the underexplored impact of the procedures in public contracts on market allocation efficiency that are at risk of corruption. We integrated the GMM-SYS estimator with analyses of a balanced panel database of all the provinces in Italy between the period 2013–2021. The use of a high level of spatial granularity in an under-researched context revealed two distinct scenarios. In competitive markets, a more entrepreneurial and less widespread form of corruption emerged which may enhance market efficiency (bottom-up pattern). Conversely, in a context with limited market competition and low institutional quality, corruption indicators may be less useful due to potential pre-bribery behavior (top-down pattern). Our study underscores the capacity of corrupt suppliers to exploit market opportunities and secure selection. We found that corruption risk practices within public contracts have the potential to improve market efficiency, thus rendering them appealing to corrupt suppliers due to their capacity to deliver economic advantages. This also applies to provinces with high-quality governance. Additionally, the paper highlights the limitations of indicators in alternative contexts. The paper has significant implications for policymakers in defining assignation criteria in high-quality contexts, but also offers insights into the effectiveness of grand corruption indicators for academics.

The role of institutions in shaping the growth-aid relationship

Empirical evidence on the relationship between aid and economic growth is mixed and inconclusive. This paper proposes a theory to explain these contradictory findings. We build an endogenous growth model with a productive public good and homogeneous agents who allocate their time to both work and the appropriation of public resources. Aid increases public resources, raising the provision of the productive public good, but promotes rent-seeking. As recent empirical evidence suggests, a hump-shaped relationship between aid and growth emerges: too much aid is counterproductive for growth, particularly when institutions are weak. Aid transmits growth from the donor to the recipient country but harms income convergence and even prevents convergence among ex-ante identical countries when aid exceeds a certain threshold. Institutional improvements raise such a threshold. Thus, countries with lower income and lower institutional quality should receive less aid, unless an institutional reform is taken as a previous step to receive that aid.

Uncertainty Spillovers and Share of Equity Sought in Outbound Cross-Border Acquisitions

ABSTRACT This study examines how uncertainty spillovers from G7 countries and China affect the share of equity in outbound cross-border acquisitions from 1996 to 2020. We show that higher uncertainty spillovers from the G7 and China significantly decrease the share of equity sought in outbound cross-border acquisitions. The effect becomes stronger when the target countries are emerging economies and have low institutional quality. Finally, the negative relationship between uncertainty spillovers and the share of equity sought remains statistically significant across a wide range of robustness tests namely, adding more control variables, subsample analysis and alternative estimation methods.

Corruption in Arab countries: a grease or sand in the wheel of economic growth? a panel smooth transition regression approach

The relationship between corruption and economic growth has long been dealt with in the literature. Yet, no consensus has been drawn about the way how corruption might affect economic growth. This paper aims at revisiting the relationship between corruption and growth in the context of Arab countries using a panel threshold model with smooth transition (PSTR). The study covers 14 Arab countries over a period from 2007 to 2017. Our results show that the institutional quality variable divide the sample into two regimes. In the first regime (low institutional quality), reducing corruption risk hinders economic growth. The second regime (high institutional quality) stipulates that a lower risk of corruption will have a positive effect on economic growth. The results on a country basis reveal two heterogenous groups and one homogenous group in terms of hydrocarbons endowment: (1) Algeria, Egypt, Jordan, Lebanon Sudan ,Syria and UEA are in favor of “grease in the wheels” hypothesis, (2) Bahrain, Kuwait, Morocco and Tunisia demonstrate “the sand in the wheel” hypothesis and (3) Oman, Saudi Arabia and Qatar showed a strong support toward “the sand in the wheel” hypothesis.

Climate change and income inequality in Asia: how does institutional quality matter?

Asia – the most vulnerable continent to climate change – problematizes policy makers with its dual challenges of high income inequality and low institutional quality. This paper sheds light on the impact of climate change and institutional quality on income inequality for a panel data set of 35 Asian countries and territories over the period of 1990–2021. Results from estimations of Feasible Generalized Least Squares (FGLS) and two-step System Generalized Method of Moments (SGMM) demonstrate that the climate change – proxied by temperature and precipitation – exacerbates income inequality, while improvement in institutional quality not only reduces it, but also lessens the harmful impact of climate change on income equality. Findings are robust with various proxies of income inequality. These results strongly confirm the important role of institutional reform in the context of rising climate change and high level of income inequality in Asian countries.

Exploratory analysis of the determinants of informality in emerging and frontier economies: an institutional approach via PLS-SEM

ABSTRACT This study explores the link between informality and institutional quality in 48 emerging economies from 2013 to 2018, using partial least squares – structural equation modeling (PLS-SEM). It delves into the role of informality and the poorly understood drivers in these economies. This study models property rights, public fund diversion, and government transparency. This study explores systemic conditions and finds a complex link between weaker institutions and increased informality. The analysis found an association between lower institutional quality and higher levels of informality, aligning with the theory that more robust institutions are linked to fewer informal activities. However, the analysis also indicated that systemic factors have a significant relationship with the degree of informality. Mediation analysis indicated an association between systemic issues, reduced institutional quality, and increased informality. State legitimacy, inequality, and factionalism have been highlighted as potential areas to address in an effort to decrease informality. Enhancing systemic conditions and public fund oversight may be important considerations. A dual approach to institutional and systemic reforms has been suggested. Regional differences indicate a need for further research on context-specific drivers. This exploratory PLS-SEM study offers detailed evidence to aid formalization policies in emerging economies.

Macroeconomic, Institutional, and Energy Consumption on Economic Growth APEC Members

Economic growth is a shared goal pursued by every country across various regions worldwide, including the member nations within the APEC organization. However, APEC member countries still encounter several economic challenges to achieve optimal economic growth. First, macroeconomic issues such as regulatory barriers limit both FDI inflows and trade. Furthermore, unemployment remains an unresolved issue. Second, based on the World Bank's average estimates, most APEC countries exhibit low institutional quality. This is due to corruption, weak law enforcement, and lack of government transparency. Third, there is the issue of limited energy supply and increased carbon emissions due to non-renewable energy consumption. This research aims to determine the influence of macroeconomics, institutional quality, and renewable energy consumption on the economic growth of APEC member countries. The analysis method for this research is PVECM regression. The data used is panel data from 2005-2019. The research results show that the variables FDI, Trade, Labor, REC, and IQ have long and short-term influences on the economic growth of APEC countries. Suggestions that can be given are to improve the quality of APEC country institutions because, as seen from the average indicator estimates by the World Bank, Most APEC countries have low institutional quality. This improvement is needed to make policies more effective and efficient. Each country is also expected to increase the amount of renewable energy consumption.

Institutions, Investment and Economic Growth: Evidence from Sub-Saharan Africa

Sub Saharan African countries experience low private investment compared to other developing countries in world. For instance, private investment in the region averaged 15% of GDP from 2010 to 2016, as compared to 22%, 18% and 17% for developing countries in Asia, Europe and Latin America respectively. This low investment level constrained the region’s ability to grow and improve social outcomes such as; increase in the real wages and poverty reduction. Low quality institutions could explain this phenomenon. Therefore, this study examined the effect of institutions on investment and economic growth of 37 SSA countries from 1996 to 2017 using dynamic panel data model. The data were retrieved from Worldwide Governance Indicators, World Development Indicators and the Chinn-Ito index. System Generalised Method of Moments was used to estimate the result. The key findings generated by the study confirmed that these measures of institutional variables and there interaction with investment yield a positive and statistically significant result. Indicating that strengthening the quality of these institutions could positively affect investment and economic growth of the region. For instance, unit increase in controlling corruption increases investment by 1.4%. Furthermore, there is evidence showing financial development slows investment growth, which can be attributed to the weak institutional arrangements, as the coefficient of financial development is negative and statistically significant. The study recommends that SSA countries should pay greater attention on institutional reforms particularly; control of corruption and political stability to drive a meaningful growth and development in the region.

Entrepreneurs and Scientists on the Russian Innovation System

The article compares the assessments of entrepreneurs and scientists regarding the Russian innovation system (RIS), its development features and problems. The relevance of this study is driven by the established consensus about the low level of interaction between business and science in the RIS. Two groups of actors, who create innovation demand and supply, observe different aspects of the same innovation process. Therefore, comparing their judgments allows for a deeper understanding of the features and dysfunctions of the RIS. In this research, we have conducted in-depth interviews with 27 representatives from the academic sphere and 26 representatives from the entrepreneurial sector. A narrative methodology was selected as a theoretical framework for the research to identify relevant judgments about the problems of the RIS and ways to overcome them. Our findings indicate that both groups of respondents have similar assessments of the innovation process, which suggests the systemic nature of the identified problems. Specifically, representatives from both business and academia acknowledge issues related to personnel shortages and the low quality of intellectual property institutions. However, the factor of macroeconomic uncertainty is more significant for entrepreneurs compared to scientists. This difference is attributed to the greater commercial motivation of businesses, while scientists primarily operate within the framework of state plans and support. Furthermore, entrepreneurs demonstrate a more optimistic outlook on the demand for innovation compared to scientists. This difference can be explained by their focus on more commercially viable and in-demand applied innovation, whereas representatives from academia often prioritize fundamental innovation.

Diversification in resource-rich Africa, 1999–2019

We survey the performance of Sub-Saharan Africa's resource-dependent economies from 1999 to 2019, a period covering the commodity price supercycle, which generated enormous rents for natural resource producers. We show that despite high overall growth rates, these states failed to convert their windfalls into broader forms of development: their economies diversified more slowly than resource-poor countries in Sub-Saharan Africa; their economies became less complex; their low institutional quality regressed further; and they achieved slower progress on human development than their resource-poor counterparts. Case studies of the top three diversifiers—Botswana, Zambia, and Nigeria—underscore the challenges of diversification. We suggest two broad reasons for these patterns. First, economic diversification, especially export diversification, is intrinsically difficult for low-and-middle income resource-dependent countries, due to both Dutch Disease effects and the isolated product spaces of the oil, gas, and minerals sectors. Second, diversification in resource-dependent states is sensitive to institutional quality, yet institutional quality is sticky and typically constrained by political interests that are hostile to reforms. This implies that the development challenges of oil, gas, and mineral dependent states over the coming decades will be significant and difficult to surmount. We suggest a more modest set of goals focused on diversifying into related activities in the extractives value chain and unrelated sectors in the domestic economy, as well as narrowly-focused efforts to boost non-resource export industries.

Is the discovery of oil a blessing or curse in the era of climate change?

The decades-old question of whether oil is a blessing or a curse to countries that discover it has received much attention in the literature on energy and resource economics and policy. Despite the contributions of the resource curse literature and its critique, the global consensus to address climate change by reducing emissions from fossil fuels poses a new challenge to the extractives-led growth strategies. This research analyzes the ways oil discoveries influence carbon emissions differently in countries with contrasting institutional quality. Our results show that the significant and intensifying treatment effects of finding oil over time lead to an increase in carbon emissions in low institutional quality countries, while such effect is not significant in high institutional quality countries. The carbon curse triggered by detrimental effects of low institutional quality encourages improving a government’s ability to provide sound policies and regulations to promote private sector development. Such ability is the focal point between neoclassical economics and developing societies that served to reveal the institutional underpinnings of market economies for high-quality growth. Beside high-quality growth, our finding reveals supplementary motivation for the quality of government, which helps mitigate the carbon curse triggered by finding oil.

Exploring the role of financial inclusion in poverty reduction: An empirical study

This study investigates the impact of financial inclusion on poverty, focusing on the role of unequal access to finance and various inequalities in developing countries during the 2004–2018 period. Women and the poor in developing countries still face discrimination in accessing financial services. Similarly, a higher income, wealth, and gender inequality, along with low institutional quality and educational attainment, may obstruct financial inclusion from reaching its target groups and influence poverty in developing countries. This study applies two-stage fixed-effect methods and conditional analysis to examine these issues. The results reveal that financial inclusion is more effective in poverty reduction in countries where women and the poor have higher access to formal finance. Though financial inclusion significantly affects poverty in countries with high inequalities, high income, and gender inequality diminish its impact. The study also investigates how institutional quality and educational attainment affect financial inclusion's impact on poverty and finds that these factors improve the effect of financial inclusion. The study prescribes that policymakers aim to make financial services accessible to disadvantaged groups. It also recommends that developing countries try to reduce inequalities, improve institutional quality, and encourage school enrollment along with financial inclusion initiatives to reduce poverty substantially.

From local to global, and return: Geographical indications and FDI in Europe

AbstractThe geographical indication (GI) scheme of the European Union guarantees visibility and protection to high‐quality agri‐food products associated with a demarcated region of origin. This paper estimates the impact of the scheme in attracting agri‐food foreign direct investment (FDI) in European NUTS3 regions, using a novel dataset and a generalized propensity score matching approach. Areas endorsed with GIs attract more FDI in agri‐food‐related activities than their non‐GI counterparts. Positive effects, estimated for FDI inflows, related job creation and inter‐sectoral spillovers on local employment, involves territories with lower institutional quality.

Institutional and individual factors associated with functional outcomes in nursing home residents under long-term care insurance in Korea: A multilevel analysis

ObjectiveThe purpose of this study was to analyze the relationship between institutional and individual characteristics that influence changes in the functional outcomes of nursing home residents. MethodsLong-term Care Insurance claims data with basic information of nursing home(n = 3,263) and long-term care needs assessment data of nursing home residents(n = 34,717) was used. The independent variable was classified into individual (level 1) and nursing home characteristics (level 2). Changes in physical function, cognitive function, and behavioral symptoms were used as dependent variables. ResultsThe institutional factors of nursing homes contributed relatively little to substantial changes in function of nursing home residents. Ownership, size, and nursing home staff including care worker and physical/occupational therapist were important determinants of functional changes in nursing home residents. ConclusionTo improve the quality of nursing homes in Korea, regulations on staffing should be modified, and an disincentive policy should be introduced for low-quality institutions.

Institutional quality and economic growth in the non-EU post-Soviet countries: Does energy abundance matter?

ABSTRACT. After regaining independence, most of the post-Soviet countries encountered socio-economic difficulties during the transition period. These challenges were also accompanied by low institutional quality. Some of the post-Soviet countries, such as Russia, Turkmenistan, Kazakhstan and Azerbaijan, can be categorized as energy-rich, while the remaining countries are non-rich in terms of energy. Thereby, the aim of this study is twofold: first, to analyze the impact of institutional quality on economic growth in the case of non-EU post-Soviet countries, and second, to determine whether there is any difference in the link of institutional quality and economic growth between the energy-rich and non-rich sample countries. Two-Stage Least Squares reveal a U-shaped association between institutional environment and economic growth. Furthermore, the results suggest that this impact is lower in the energy-rich countries compared with their non-rich counterparts. With regards to the control variables, the findings indicate a positive and statistically significant impact of openness on economic growth. Finally, there is a negative association between the remaining control variables, such as inflation, population growth rate and the dependent variable.

Financial development, institutions and industrialization in sub‐Saharan Africa

AbstractUsing a panel data covering more than 100 countries worldwide, we have estimated a dynamic panel model to investigate the relationship between financial development and manufacturing industries’ growth. More specifically, we have estimated the effect that institutional quality might have in this relationship in sub‐Saharan Africa (SSA). The results show that lower quality institutions in SSA are a hindrance to the role financial development plays in the growth of the manufacturing industrial sector, as compared with developed countries. These findings are robust when a quantile regression model is used. Furthermore, the results confirm that the relationship between per capita GDP and industrialization is nonlinear. Finally, in SSA, the abundance of natural resources has an adverse effect on the manufacturing industrial value added, providing more evidence for the Dutch disease hypothesis.