Quality Of Local Institutions Research Articles

Politics and city growth in Italy: Do connections matter?

AbstractIn this paper, I assess the existence of a political connection premium for Italian municipalities during the so-called “Second Republic” (1991–2011). The early 1990s witnessed a seminal event in Italian political history with the “Mani Pulite” (“Clean Hands”) investigation following the fall of the Berlin Wall. Subsequently, major political parties dissolved, culminating in a bipolar political landscape characterized by cyclical alternation between center-right and center-left factions (extending until at least 2011). Exploiting population data on small and medium-sized Italian municipalities between 1991 and 2011, I found that “politically connected” municipalities showed a population premium of about 2.5% compared to “non-politically connected” ones. The results are robust to NUTS-3 fixed effects, to a comprehensive set of controls, and to a full set of robustness checks. The relationship is confirmed using aggregate municipal income data as an additional proxy of local economic growth. Over and above this, social capital and the quality of local institutions seem to play a pivotal role in enabling the political connection. Election-related checks suggest the connection as two-way: using municipal data from the 2013 and 2018 general elections, I found that the treated municipalities depicted a higher turnout and fewer populist votes.

The role of local institutional quality for the digital and environmental transitions in Italy

In this paper we analyze the effect of institutional quality on the so-called Twin transition at provincial level in Italy. To carry out the analysis, we use two proxies for the ecological transition, namely waste management and air pollution, and two proxies for the digital transition, namely ultra-wide band connections and provincial innovative start-ups. All the models are estimated on a panel of 103 provinces with a time dimension that varies for the different dependent variables. We employ Spatial Durbin Model estimator to take into account spatial dependence across provinces. Our findings indicate that the quality of local institutions may have an important role for the ecological transition, but not for the digital transition. Higher levels of institutional quality increase the performance in waste management and reduce the level of local air pollution. Conversely, the estimated coefficient of institutional quality is not statistically significant neither for ultra-wide band nor for innovative start-ups. Institutional quality turns to be significant but negative for the digital transition when dummy variable controlling for the presence of science-oriented university is added in the model specification. These results confirm that the green transition is largely policy-driven and the local ‘institutional environment’ is an essential ingredient for its effectiveness. The driving forces of the digital transition, instead, can be better found in socio-economic factors that depend on the ‘economic quality’ of the local system and its propensity to innovate within larger-scale innovation trajectories.

Fiscal multipliers in recession and expansion. An analysis for the Italian regions

This paper estimates the multipliers of two types of government spending in the 20 Italian administrative regions throughout 1960–2017, distinguishing between phases of expansion and recession. We derive regime- and region-specific multipliers through a nonlinear Bayesian heterogeneous panel threshold VAR model and provide a wide-ranging sensitivity analysis. We find that both government consumption and government investment multipliers are higher in recession than in expansion. In almost every region, government investment multipliers exceed unity in recession phases and are generally higher than their government consumption counterparts regardless of the business cycle. An exploratory analysis of the region-specific multipliers suggests that the difference between the region-specific multipliers in recession and expansion is positively associated with structural labour slack and negatively associated with trade openness. Factors related to the quality of local institutions, such as corruption and the relative size of the informal economy, also have a negative impact.

The impact of FDI on R&D investment of small and medium-sized enterprises in Vietnam: The role of institutions

This paper investigates how the quality of the local institutional environment affects the impact of foreign direct investment (FDI) on R&D investment of domestic small and medium-sized enterprises (SMEs) in Vietnam. By analysing data of 2690 manufacturing SMEs in 2011, 2013 and 2015, we find that FDI presence hinders R&D activities of domestic SMEs, probably due to SMEs' low absorptive capacity, large technological gap, lack of economies of scale and low market power. However, institutions positively moderate the relationship, that is better institutions mitigate the negative impacts of FDI on R&D investment of domestic SMEs. When the quality of local institutions improves beyond a certain minimum level, FDI exerts positive spillovers that encourage R&D activities of domestic SMEs. Our hypothesis suggests that institutions can moderate FDI spillovers to SMEs' R&D by promoting the foreign investors' incentive and ability to create technological spillovers, mitigating FDI crowding-out effects, enhancing domestic SMEs' absorptive capacity, and facilitating interaction and knowledge sharing in the local business environment. We also find that the institutional moderating effect is less pronounced for FDI originating from countries with lower institutional quality compared to that from countries with higher institutional quality. This suggests that multinational enterprises (MNEs) in the former group may be more susceptible to institutional impacts due to their unfamiliarity with institutional obstacles in the host economy. Our study highlights the importance of institutions to researchers who explore the relationship between FDI and domestic firms’ R&D investment and to policymakers in emerging economies where FDI inflows and domestic SMEs play a pivotal role.

Does better regulatory institutions always enhance the productivity effects of services trade liberalization？

The majority of previous studies have asserted that the high quality of local institutions can improve the productivity effects of trade policies; yet, only a few studies have acknowledged the heterogeneous impact of these institutions. Using data from Chinese manufacturing plants, we examine the moderating effects of regional-level regulations on the effectiveness of national services trade policy. The key findings are threefold: First, as the initial degree of service liberalization advances, the productivity effect of trade liberalization diminishes. Second, opening access to foreign enterprises can substitute for pro-competitive regulatory reform. Regardless of whether the regulatory institutions related to administrative processes, law enforcement, and commercial service have improved, services trade liberalization can have significant productivity effects. Third, in contrast, when regulations to protect for local incumbents impose prohibitive costs for new entrants, the impact of services trade liberalization is highly contingent on local regulatory improvement. The confirmation that trade liberalization can potentially serve as an alternative measure for local regulation reform in Chinese context distinguishes this study from others.

Beyond GDP: assessing the impact of the 2007–13 EU Cohesion Policy

ABSTRACT In this paper, we present new evidence on the European Union’s (EU) Cohesion Policy’s last concluded programming period (2007–13). We depart from the broadly used gross domestic product (GDP) growth approach and evaluate the multidimensional impact of EU Structural Funds on a large battery of regional indicators, including economic, educational, health, social and environmental outcomes. This comprehensive analysis shows an overall almost null effect of the policy. Furthermore, we dig deeper into the heterogeneity of the effect due to the quality of local institutions, human capital and urbanisation on the policy’s effectiveness. The results suggest that these characteristics may influence the relationship between Structural Funds and various economic, social and accessibility outcomes. Conversely, the lack of impact on environmental outcomes is much more general and could be attributed to the unpreparedness of the policy design, which was specifically aligned with the new objectives only in the subsequent programming period.

Government reform and innovation performance in China

Innovation is key for economic growth and well-being. The capacity for innovation, however, is profoundly influenced by the quality of local institutions. Although the impact of national institutions on innovation is well-documented, the effects of subnational institutional variations on innovation remain underexplored. This paper studies the impact of government agency reforms, designed to enhance local government effectiveness, on the innovation performance of city-regions in China. We examine the adoption of these reforms between 2009 and 2016 as an exogenous shock to regional institutions. Our analysis identifies a positive and significant relationship between improvements in institutional quality and the innovation performance of Chinese city-regions, particularly pronounced in regions with medium to high levels of innovation. The results are robust to a series of checks including placebo and endogeneity tests and potential confounding policies. This research highlights the critical role of government institutions in driving innovation across China, bringing to the fore important regional variations in the adoption of government agency reforms that are defining the country’s innovation landscape.

You want me, but I no longer want you. The punishment-reward mechanism and institutional quality in Italian regions

ABSTRACT Following the principal theory concerning the foundations of voting behaviour it is possible to assert that citizens hold politicians and their parties accountable through their votes. From this perspective, if citizens perceive the quality of local institutions to be a result of the policies enacted by local authorities they may punish or reward the incumbent parties. By means of a quantitative approach, our results, based on the analysis of 15 different election rounds, show that various dimensions of institutional quality impact voting behaviour in Italian provinces. The punishment-reward mechanism suggests that political preferences change because local institutions lack quality.

Ethnolinguistic diversity, quality of local public institutions, and firm-level innovation

Institutional quality is crucial for innovation and economic growth. In this article, we exploit historical linguistic differences across Slovenian municipalities between the Italian, German, and Slovenian-speaking population prior to World War 1, as a plausible exogenous source of variation in firm-level innovation to estimate the effect of institutional quality on innovation. Employing a set of limited dependent variable and instrumental variable models, we show that greater historical exposure to multilingualism is associated with markedly better quality of government and provision of public goods, more impartial local government administration, and lower prevalence of corruption, which in turn predicts systematically more vibrant economic activity, greater economic complexity, and higher rates of firm-level innovation at the local level. The estimated effects are robust to a variety of specification checks and do not appear to be sensitive to the choice of ethnic and linguistic diversity measures.

Cadmium, Lead, Chronic Physiological Stress and Endometrial Cancer: How Environmental Policy Can Alter the Exposure of At-Risk Women in the United States.

The health and life outcomes of individuals are intertwined with the context in which they grow and live. The totality of exposures one experiences affects health in the short term and throughout the life course. Environmental exposure to multiple contaminants can increase stress levels in individuals and neighborhoods with psychosocial stressors such as crime, drug and alcohol misuse, and violence also taking a toll on individual and neighborhood wellbeing. In addition, the availability, organization, and quality of local institutions and infrastructure all affect health in the short and long term. The role of these factors in endometrial cancer will be explored in this paper. In addition, policy implications regarding lead, chronic physiological stress, and endometrial cancer will be explored to ascertain the impact of these factors on at-risk women.

England’s catch-22: institutional limitations to achieving balanced growth through devolution

ABSTRACT International studies show that relative levels of regional (de)centralisation are associated with more or less balanced patterns of economic growth, well-being and resilience. Alongside supporting specific levels and types of devolution, prior studies emphasise the quality of local institutions as a key factor underlying balanced growth. This study empirically confirms the relative lack of devolution alongside large and growing disparities across England’s regions. Drawing on an interview-based case study of the West Midlands, we then identify a Catch-22, with devolution predicated on high-quality local institutions caught in a highly centralised system that undermines the development of the required capacity and competency. We identify specific decision-making and resource allocation mechanisms, appraisal and control systems which underpin the dominance of central government agencies in an ad hoc and asymmetric approach to devolution. In combination these limit progress towards locally-driven ‘levelling-up’.

Regional healthcare infrastructure disparities and foreign direct investment into Europe

This study examines the impact of sub-national healthcare infrastructure heterogeneity on the location choice of inward foreign direct investment (FDI). We do so by employing an augmented gravity model on Japanese firm-level FDI into European NUTS-2 regions during the period 2000-2017. Differences in each region's per capita number of hospital beds and practicing physicians highlight the healthcare infrastructure heterogeneity across Europe. Our negative binomial estimation results indicate that both hospital beds and practicing physicians significantly positively attract inward FDI, with physician density having the more significant impact. The findings are consistent with the hypothesis that the quality of local institutions is a determinant of FDI attraction.

Ownership, innovation, and variable institutional quality

AbstractResearch question/issueInnovation has been a constant feature of the tales of transition and transformation. State ownership as the engine of innovation and technological change may be juxtaposed with the “liability of stateness” and the notion that “privatization works.” This study seeks to investigate the relationship between legal ownership and innovation inputs and outputs, while accounting for the moderating effect of institutional quality on this relationship.Research findings/insightsWe exploit unique data from a very large‐scale panel survey of enterprises (65,750 firms between 2006 and 2014) in Vietnam, a fast‐growing but understudied transition country, and apply advanced methodologies that control for the endogeneity of institutions. Our findings point to the continued dominance of state‐owned enterprises (SOEs) in innovation activities in Vietnam. However, the returns to innovation in SOEs accrue only up to a point and improving institutional quality serves to diminish their advantage over privately‐owned enterprises (POEs) and to level the playing field.Theoretical/academic implicationsWe employ an integrated framework that develops predictions from resource dependence, agency, and institutional theories to explore the direct and contingent influences of ownership and institutional quality on firm‐level innovation activities. Our study contributes to the growing literature on state ownership and innovation in transition and emerging economies and the recent calls for greater attention to local institutional context and revising the existing theories on “state underperformance.”Practitioner/policy implicationsThis study offers insights to policy makers in enhancing the quality of local institutions. Higher‐quality institutions moderate the advantages state ownership confers and ameliorate the disadvantages associated with private ownership.

Speed of spending and government decentralization: evidence from Italy

ABSTRACT This paper investigates whether government decentralization affects the duration of public projects in Italy. Considering a large sample of 415,378 projects managed by different levels of government and co-funded by European funds within the 2007–13 programming period, we found strong differences between areas. In the South and in some Central regions, project duration was higher for the lowest level of government and lower at more centralized levels. This suggests that decentralization there reduced the speed of public spending and therefore spending efficiency. In the North and in most Central regions, the results were mixed. These regional differences were driven by the quality of local institutions.

The Quality of Local Institutions: The Case of Poland

There is a growing consensus within both policy and academic circles, including various schools of political, legal, and economic thought, that institutions matter and that the quality of institutions and governments makes an important difference for economic development. However, while the institutional literature has extensively discussed different types of institutions and their importance, only a few quantitative measures of formal institutions and their quality are available. What is more, most analyses referring to the quality of public institutions concern the national or regional level and the issue at the local level is relatively understudied. The purpose of the article is to fill this gap in two ways. The first one is to identify territorial differentiation of the quality of public institutions at the local level in Poland; the second one, to explain the reasons of the differentiation of institutional capacities in the context of historical, cultural, and social factors. The research has shown that the quality of public institutions is highly related to historical circumstances. However, although their impact is strong, the historical conditions are definitely not the only factor influencing local institutional capital in Poland, as they appear to be deeply affected also by the level of urbanization and the degree of human capital.

Inequality, institutions and cooperation

We examine whether the relationship between economic inequality and voluntary cooperation is influenced by the quality of local institutions, as proxied by corruption. We use representative data from a large-scale lab-in-the-field public goods experiment with over 1,300 participants across rural Vietnam. Our results show that inequality adversely affects aggregate contributions due to high endowment individuals contributing a significantly smaller share than those with low endowments. This negative effect of inequality on cooperation is stronger in high corruption environments. We find that corruption is associated with pessimistic beliefs about others’ contributions in heterogeneous groups, highlighting the indirect costs of corruption that are understudied in the literature. These findings have implications for public policies aimed at resolving local collective action problems.

Local institutions, external finance and investment decisions of small businesses in Vietnam

This study investigates the impacts of local institutions, external finance, and their joint effects on firm investment in Vietnam. Investment decisions are classified into two categories: fixed asset investment and non-fixed asset investment. Analysing a set of 1.3 million firm-year observations of businesses in Vietnam (2006–2016), we find evidence that local institutions (both formal and informal) positively influence fixed asset investment but negatively affect non-fixed asset investment. Also, we find that informal loans are positively associated with both types of firm investment while bank loans are negatively associated with both types of firm investment. More importantly, we find that the quality of local institutions is able to moderate firms’ external financing behaviour, leading to increased investment values.

Institutions and the productivity challenge for European regions

AbstractEurope has witnessed a considerable labour productivity slowdown in recent decades. Many potential explanations have been proposed to address this productivity ‘puzzle’. However, how the quality of local institutions influences labour productivity has been overlooked by the literature. This article addresses this gap by evaluating how institutional quality affects labour productivity growth and, particularly, its determinants at the regional level during the period 2003–2015. The results indicate that institutional quality influences regions’ labour productivity growth both directly—as improvements in institutional quality drive productivity growth—and indirectly—as the short- and long-run returns of human capital and innovation on labour productivity growth are affected by regional variations in institutional quality.

Global Flows, Local Conditions and Productivity Spillovers: The Case of the Central and Eastern European Countries

The evolution of labour productivity in an economy can be affected by technology transfer through international linkages, as this permits the incorporation of innovation and automation intensive capital goods into the local productive system. Globalization may be an opportunity to promote sustainable growth – within the industry 4.0 framework – in economies with low levels of innovation or automation. In this paper, we analyse the role of global flows and local conditions for a sustainable productivity growth in the EU member states of Central and Eastern Europe. We focus on the imports of capital goods and foreign direct investment (FDI) inflows as main drivers of technology diffusion and productivity spillovers. As productivity also depends on the local capacity for technology adoption, in this work, we control for domestic factors, such as the domestic investment, R&D expenditure, levels of human capital and the quality of local institutions. Our estimates based on panel data models for 2000-2018, confirm that capital imports have been productivity enhancing in Central and Eastern European countries. Evidence that FDI inflows have a positive influence in the transmission of technology is vague or insignificant according to our model. Finally, our estimates show that countries with higher R&D spending, stronger institutions and higher physical and human capital endowments enjoy higher productivity gains

Contingent Signaling Effects of Anti-Mafia Interventions of MNEs’ Acquisitions in Italy (2000-2015)

Extant research on cross-border acquisitions argues that foreign firms’ ownership choices reflect signals about the quality of local institutions, in a way that a ‘positive’ signal is typically associated with a higher likelihood of majority ownership. In this paper, we challenge the common assumption that foreign firms univocally interpret such signals as positive or negative. We propose that MNEs may interpret the same signals differently depending on the consistency between the signal and the recipients’ mental models about the underlying phenomena. We test these conjectures in the context of government-sponsored institutional actions against mafia operations in Italy, using a dataset comprising 3,924 foreign acquisition deals in Italy in the period 2000 – 2015. Our findings indicate that MNEs’ ownership level increases as a response to anti- mafia institutional actions only when the acquirer is rooted in contexts (sectors or countries) that make the signal salient. Adopting a signaling theory perspective, our results contribute to international business research by placing a unique emphasis on signal interpretation. We also bring a more nuanced understanding of how the continued rise of organized crime as an important economic actor presents a grand challenge to a rule-based society.