Proxy For Institutional Quality Research Articles

Impact of Urbanization, Development Level, and Openness on Institutions in Bangladesh: An ARDL Investigation Using Two Measures of Institutional Quality

Future development policies require a better understanding of the various factors that affect the quality of institutions in Bangladesh. In this paper, we estimate empirical ARDL models to investigate the roles of urbanization, openness, and the level of development as determinants of institutional quality. We use two measures of institutional quality, both derived from the World Bank’s Worldwide Governance Indicators (WGIs). The first proxy, INQ, is a composite index developed from the six WGIs using Principal Component Analysis (PCA). The second indicator, AvgINQ, is the average of the six WGIs. For each indicator of institutional quality, three models were estimated, resulting in six models in total. The impact of urbanization on institutional quality is consistent in terms of sign and significance across all six models, a claim that cannot be made for the other variables in the model. The error correction term reflects dampening convergence to equilibrium for the first proxy for institutional quality but regular convergence when the second proxy is used. In terms of ARDL diagnostics, models with AvgINQ as the dependent variable perform better. The Johansen cointegration test confirms the existence of a long-term relationship among the variables in all the models. Pairwise Granger causality tests are also conducted. The findings emphasize the importance of managing urbanization pressure for better institutional quality.

Institutional Quality, Trust in Institutions, and Waste Recycling Performance in the EU27

This paper addresses the role of institutional quality and trust in institutions for the performance in waste recycling of the EU27 countries. While survey-based works have highlighted the role of these factors for waste recycling attitudes and performance at the micro level, econometric analyses of recycling in Europe at country and regional levels have mostly looked into the role of waste policies, and not the role of institutional factors, in driving progresses in waste recycling. This paper tries to fill this gap through a panel econometrics analysis of recycling rates of municipal solid waste at the national level for the EU27 countries for the period 2005–2020. The proxies for institutional quality and trust in institutions, as the variables of interest, are introduced into a model that includes controls on a set of socio-economic variables, and on a set of EU waste policy variables, in particular the Waste Framework Directive (WFD) and its revision, and the first Circular Economy Action Plan of 2015 (CEAP 2015). Our results support the hypothesis that the quality of institutions can influence waste recycling performance. Moreover, our results provide evidence on the negative role of institutional trust on recycling rate at country level. Similarly, we find that the EU WFD and CEAP 2015 have been significant in driving recycling performances; the latter finding, however, is a necessary condition in appropriate institutional and socio-economic environments at the national level.

Institutional development in an information-driven economy: can ICTs enhance economic growth for low- and lower middle-income countries?

ABSTRACT The information and communication technology (ICT) revolution has brought positive spill-over effects on institutions and economies across the globe, but it has also increased the information gaps between countries. A key characteristic that may explain these widening gaps is the deepening endogenous relationships between ICT infrastructure, institutions of governance, and economic growth in many developing countries. Thus far, the links between these variables have not been discernible in developing economies, so few studies have explored them. In this paper, we investigate the possible Granger causal relationships among institutional quality, economic growth, and ICT infrastructure development for a sample of developing countries for the period from 2005 to 2019. The application of a vector error-correction model reveals strong inter-relationships between all the variables in the short run. In the long run, institutional quality and ICT infrastructure development stimulate economic growth. These complex relationships are explored and lessons are drawn for policymakers. RESEARCH HIGHLIGHTS We assess interactions between institutional quality and ICT infrastructure as well as economic growth. We deploy a panel Granger causality test for low- and lower middle-income countries from 2005 to 2019. We show that there is Granger causality between the variables in the short and the long term. For each case and specification, there is support for the hypothesis that ICT infrastructure and institutional quality both Granger-cause growth in the economy. In the short run, we note a feedback relationship between institutional quality and economic growth. Other short-run results are more varied, based on the particulars proxies for institutional quality and ICT infrastructure.

Revisiting the impact of institutional quality on post-GFC bank risk-taking: Evidence from emerging countries

This is the first attempt to address the impact of institutional quality on post-GFC bank risk-taking behavior. This study is conducted on 730 banks from 19 emerging countries covering the period 2011–2016. We used six indicators of good governance as a proxy for institutional quality. Both static panel and Dynamic GMM estimation are used to identify the impact of these variables on bank risk-taking; measured by Z-score. We evidenced that increasing government effectiveness, controlling corruption, and improving agents' confidence and adherence to the rule of law reduce banks' risk exposure and improve banks' stability. Besides supporting the Z-score model, the robustness test using σ(NIM) also provides evidence of the impact of regulatory quality on reducing bank risk. Surprisingly, both models tend to indicate that improving voice and accountability increase bank risk-taking in emerging countries. Furthermore, our study provides an interesting reconciliation to the major debate on the impact of size on bank risk.

Impact of Natural Resource Rents and Institutional Quality on Human Capital: A Case Study of the United Arab Emirates

For many years, the United Arab Emirates has been using its natural resource wealth to develop infrastructure and attain economic growth. Nevertheless, human capital theory stresses the importance of human capital to reach sustainability in the long-term. This study examines the impacts of natural resource rents and institutional quality on human capital by applying the cointegration and error correction model based on the autoregressive distributed lag (ARDL) approach. The study uses corruption and law and order as proxies for institutional quality. The results indicate that one percent increases in resource rents and corruption decrease the human capital by 0.16% and 0.14%, respectively, in the long-term. Moreover, in the short-term, the current corruption and lag of resource rents have significant negative impacts on human capital. However, law and order has a positive impact on human capital in both the short and long-term. Thus, this study suggests that there is an instant need to prioritize education to reach long-term sustainability.

Health expenditure and FDI in Europe

The quality of local institutions and the governmental measures sustaining Foreign Direct Investments (FDI) are some of the traditional determinants of multinational agglomerations. One institution which has so far been under-investigated is the health system. Yet several empirical contributions have shown that health is a constituent part of human capital (Bloom and Canning, 2004; Alsan et al., 2006; Ogundari and Awokuse, 2018). Therefore, the quality of the health system may be considered an important FDI attractor factor alongside infrastructures, education, labor force and R&D expenditure (Ingram and Silverman, 2002; Blomström, 2006).The aim of this contribution is to investigate the role of different national institutional settings in attracting FDI within the 28 Member States of the European Union. More specifically, the research focuses on the relation between health expenditure and FDI, assuming that a proxy for institutional quality is the percentage of public health expenditure on the total health expenditure.We adopt a panel GLS methodology with heteroskedasticity and specific autocorrelation and we use a dataset for the 28 European countries that are part of the EU in the period 2000–2013. By means of three model-specifications, we investigate the relation between the inward stock of FDI and: the percentage of government health expenditure on the total health care expenditure; the percentage of Out-Of-Pocket (OOP) expenditure on the total private health care expenditure; and the health coverage regime. We also explore the relation between FDI and population health, a facet of human infrastructure (Globerman and Shapiro, 2002) expressed by healthy life years (HLYs) and the percentage of population claiming to be in perfect/good health. Control variables relate to government regulatory quality, market dimension, government effort in R&D in higher education; and labor productivity. In all models the relation among the dependent variable and the explicative variables related to health expenditure is always significant and, unsurprisingly, it is positive for the percentage of public health expenditure and negative for the percentage of OOP expenditure. The variables describing population health are always positively related to FDI, though population health, expressed in HLYs, is always statistically significant. In contrast, the variable concerning the self-assessment of population good health is only significant in the model where the dummies representing the health coverage regimes are not considered. These last variables appear to absorb the effect of population good health on FDI.Our results are consistent with the idea that health is a component of human infrastructure and is influenced by public policies and governments (Globerman and Shapiro, 2002). Both human infrastructure (resources-population health) and governance infrastructure (institutions-health systems) are key features of a country and determine its potential in attracting FDI.

Geographic Endowment, Corruption, and Economic Development

Corruption plays an important role in determining the effectiveness and quality of the institution, and growth. This paper investigates the linkage between corruption, various measures of geographical endowments and economic growth. I use corruption as a proxy for institutional quality and try to solve the endogeneity problem by Instrumental Variable approach as 2SLS for panel data for a sample of 192 countries and showed that corruption matters for economic growth. The results indicate that graphical endowments explain cross-country variation in economic development through their effect on corruption even when I control for other historical and cultural factors. Thus, when considering making policy for developing or developed countries much attention should be paid to this fact.

The end of free college in England: Implications for enrolments, equity, and quality

Despite increasing financial pressures on higher education systems throughout the world, many governments remain resolutely opposed to the introduction of tuition fees, and some countries and states where tuition fees have been long established are now reconsidering free higher education. This paper examines the consequences of charging tuition fees on university enrolments, equity, and proxies for institutional quality. To do so, we study the English higher education system which has, in just two decades, moved from a free college system to one in which tuition fees are among the highest in the world. Our findings suggest that England's shift has resulted in increased funding per head and rising enrolments, with no apparent widening of the participation gap between advantaged and disadvantaged students. The role of fees is moderated by other key features of higher education finance which may differ across countries: in contrast to other systems with high tuition fees, the English system is distinct in that its income-contingent loan system ensures that no tuition fees are paid upfront, and provides students with comparatively generous assistance for living expenses. Still, the English experience provides an instructive case for other countries considering implementing or abolishing tuition fees.

The macroeconomy and microfinance outreach: a panel data analysis

ABSTRACTThis study examines the effects of macroeconomic and institutional factors on microfinance institution (MFI) outreach. To capture the performance of the macroeconomy, we include proxies for institutional quality, economic growth, FDI inflow, unemployment rate, inflation and the prevalence of wage-earning jobs. Further, we examine effects on outreach along the dimensions of outreach depth and outreach breadth. Using data on 1526 MFIs from 99 countries over the period 2000 to 2015, our results suggest that environments characterised by high levels of economic performance and good institutions tend to hinder outreach performance. These results suggest that MFIs depend on a poor economy to thrive given the informal nature of microfinance.

Institutions and entrepreneurship: the mediating role of corruption

PurposeThe purpose of this paper is to examine the mediating role of corruption in the relationship between entrepreneurship and institutional quality in a sample of 90 countries from all around the world.Design/methodology/approachThe data were collected from the Global Entrepreneurship Monitor, which developed a model where Corruption Perception Index as a proxy for corruption mediates the relationship between the variable rule of law as a proxy for institutional quality and opportunity entrepreneurship as a proxy for productive entrepreneurship. Correlation, Baron and Kenny approach (causal steps approach) and PROCESS Macro (normal test theory) developed by Hayes were used to find out the direct and indirect effects of institutional quality between corruption and entrepreneurship.FindingsThe bootstrap mediation results indicated that institutional quality was a significant predictor of corruption and corruption was a significant predictor of entrepreneurship. These findings support the mediation hypothesis. In addition, findings showed that there is a negative relation between corruption and productive entrepreneurship and a positive relation between institutional quality and productive entrepreneurship.Research limitations/implicationsThe current study only considered the single proxy for institutional quality, i.e. rule of law; therefore, some other proxies for institutional quality such as government effectiveness and doing business can be used for future studies. Moreover, the proposed model does not control for the country differences like GDP or development stages of countries.Practical implicationsThe findings of this study indicate that the total association between institutional quality and entrepreneurship is not only direct but also that rule of law contributes to levels of entrepreneurship through reduced levels of corruption. As a result, countries with higher levels of rule of law tended to experience corruption at lower levels, which in turn contributed to the emergence of increased levels of entrepreneurship. Furthermore, these results may be beneficial for organizations fighting against corruption, because entrepreneurial activity can be add to the group of economical drivers constrained by corruption. It is also beneficial for policy makers who focus on promoting entrepreneurship, since one way to increase entrepreneurial activity is to lower the existing corruption level.Originality/valueThe results indicated that the direct effect of institutional quality on the entrepreneurship remained significant when controlling for corruption, thus suggesting partial mediation. In other words, corruption only mediates part of the effect of institutional quality on entrepreneurship, that is, the intervention (institutional quality) has some residual direct effect even after the mediator (corruption) was introduced into the model.

Determinants of high-tech export in developing countries based on Bayesian model averaging

Given the importance and role of high-tech exports in economic growth, it is necessary to identify variables affecting export. Accordingly, in this article we studied the determinants of export for 24 developing countries during the period 1996 to 2013 based on Bayesian Model Averaging (BMA) and Weighted-Average Least Square (WALS) technique. The results show that rule of law as a proxy for Institutional quality, human capital, import (as a measure of openness) and GDP with posterior inclusion probability 100% are the most important variables influencing the high- technology export in developing countries.

The Grecian Horse: Does Immigration Lead to the Deterioration of American Institutions?

Concerns about the institutional impact of immigration, particularly, in the United States, are not new. We can trace them all the way back to Thomas Jefferson and Alexander Hamilton. More recently, in response to a literature that questions the efficiency of current immigration restrictions, Borjas (2015) expresses similar concerns about the institutional impact of immigrants coming from countries with poor institutions. Using economic freedom as proxy for institutional quality of the American states since 1980, using several estimation techniques and control variables, our results show that concerns about the institutional impact of immigrants are so far not supported.

Beyond fisheries: Common-pool resource problems in oceanic resources and services

Regions and countries manage and sustain oceanic resources and services with varying degrees of success. Our empirical analysis discusses the extent to which this variation can be explained by common pool resource (CPR) characteristics, controlling for institutional quality, island status, the existence of marine-protected areas, and the ratification of marine environmental agreements. Using data from the Ocean Health Index (OHI), we confirm that the problems related to CPRs are not restricted to fisheries. Other oceanic services and assets, including the provision of oceanic natural products, habitat health, and species richness, also decline with the number of neighboring countries. By contrast, the aspects of ocean health-like sustainable tourism, the preservation of iconic species, or the mitigation of trash pollution benefit from neighborhood stress. Overall, there is little evidence that economic development (expressed in per capita gross domestic product [GDP] and used as a proxy for institutional quality) contributes to sustaining oceanic resources. In general, the OHI appears to capture the established characteristics of various oceanic resources and services very well. Accordingly, it represents an important data source for improving our understanding of the variation in oceanic resources and services, an indispensable factor in developing and achieving sustainable development strategies for the ocean. (C) 2016 Elsevier Ltd. All rights reserved.

Institutional Quality, Economic Freedom and Stock Market Volatility in the MENA Region

How can a government help secure low-cost equity financing? This study offers an answer that a government can secure sustainable economic progress when policies of economic freedom are well institutionalized in a way that results in low equity volatility, thus low-cost equity financing. This study examines the quantitative and empirical associations between elements of Economic Freedom Index (being treated in this study as a proxy for institutional quality) and stock market volatility. The authors classify the institutional quality into three levels; high, medium and low. The data cover the years 1996-2014 for the MENA countries. The statistical tests include fixed and random effects, linearity versus non-linearity. The results show that stock market volatility can be mitigated and reduced when economic freedom is associated with an effective enforcement of law and efficient regulations. Nevertheless, the high freedom from corruption results in active equity trading which is associated with high volatility that leads in turn to high cost of equity financing. The study contributes to the literature in terms of offering practical insights on the pillars of economic freedom that policy makers must improve in order to mitigate or reduce equity volatility, therefore cost of equity financing.

Institutional quality, economic freedom and stock market volatility in the MENA region

How can a government help secure low-cost equity financing? This study offers an answer that a government can secure sustainable economic progress when policies of economic freedom are well institutionalized in a way that results in low equity volatility, thus low-cost equity financing. This study examines the quantitative and empirical associations between elements of Economic Freedom Index (being treated in this study as a proxy for institutional quality) and stock market volatility. The authors classify the institutional quality into three levels: high, medium and low. The data cover the years 1996–2014 for the MENA countries. The statistical tests include fixed and random effects, linearity versus non-linearity. The results show that stock market volatility can be mitigated and reduced when economic freedom is associated with an effective enforcement of law and efficient regulations. Nevertheless, the high freedom from corruption results in active equity trading which is associated with high volatility that leads in turn to high cost of equity financing. The study contributes to the literature in terms of offering practical insights on the pillars of economic freedom that policymakers must improve in order to mitigate or reduce equity volatility, therefore cost of equity financing.

Institutions, Informal Labor Markets, and Business Cycle Volatility

I build a business cycle labor search-and-matching model with informal labor markets, which shows that different dimensions of institutional quality have similar effects on the size of the informal sector, but different effects on the relationship between informality and long-run macroeconomic outcomes and between informality and labor market volatility. For the same change in informal sector size, changes in different proxies for institutional quality have contrasting quantitative implications for the steady state and the volatility of the labor market, despite having similar consequences on other macroeconomic variables. These results highlight the importance of identifying the source behind changes in the size of the informal sector to characterize the link between informality and business cycle dynamics.

Inequality and Fractionalization

We present evidence that ethnic fragmentation explains variations in per capita income, institutions, and schooling better than income inequality when both are treated as endogenous. To do so, we identify instruments for ethnic fractionalization and income inequality based on historical experience. Using instrumental variables estimation, we find that ethnic fractionalization explains the level of income both when income inequality is included as a control in the estimation and when it is not. However, we find no evidence that income inequality affects the level of income when ethnic fractionalization is properly treated as an endogenous variable. We have similar findings when other development outcomes such as schooling or proxies for institutional quality are used as dependent variables. These results are robust to various controls and changes in the sample size and suggest that some of the previous findings regarding the effect of income inequality on development should be attributed to ethnic fractionalization.

Institutional quality, knowledge spillovers and entrepreneurship

We examine the impact of institutional quality on early stage and formal entrepreneurial activity and on knowledge spillovers. We use four institutional variables – the protection of property rights, business freedom, financial depth, and corruption as proxies for institutional quality. Results suggest that financial institutions matter for formal and early-stage entrepreneurship. Corruption deters formal entrepreneurship, but the presence of corrupt institutions positively influences the conversion of early-stage entrepreneurial entities into formal business ventures. The presence of scientific knowledge in the public domain encourages the knowledge spillover process to early stage entrepreneurs but is retarded by a strong legal and regulatory environment.

Inequality and Fractionalization

We present evidence that ethnic fragmentation explains variations in per capita income, institutions, and schooling better than income inequality when both are treated as endogenous. To do so, we identify instruments for ethnic fractionalization and income inequality based on historical experience. Using instrumental variables estimation, we find that ethnic fractionalization explains the level of income both when income inequality is included as a control in the estimation and when it is not. However, we find no evidence that income inequality affects the level of income when ethnic fractionalization is properly treated as an endogenous variable. We have similar findings when other development outcomes such as schooling or proxies for institutional quality are used as dependent variables. These results are robust to various controls and changes in the sample size and suggest that some of the previous findings regarding the effect of income inequality on development should be attributed to ethnic fractionalization.

Fertile Soil for Structural Funds? A Panel Data Analysis of the Conditional Effectiveness of European Cohesion Policy

Structural funds are the most intensively used policy instrument by the European Union to promote economic growth in its member states and to speed up the process of convergence. This paper empirically explores the effectiveness of European Structural Funds by means of a panel data analysis for 13 countries in the European Union. We show that – on average – Structural Funds are ineffective. For countries with high-quality institutions, however, Structural Funds are effective. This result is obtained for several proxies for institutional quality and is robust for different estimation techniques (OLS, period- and country-specific fixed effects and dynamic panel data models).