Role Of Informal Institutions Research Articles

Offshoring innovation to emerging markets: Organizational control and informal institutional distance

The literature on innovation offshoring has focused on the dichotomous choice between two distinct investment strategies – captive offshoring and outsourced offshoring. We use the concept of organizational control to investigate how differences in the informal institutions that prevail in the home and host countries influence multinational enterprise (MNE) strategy (or, the organizational control decision) with respect to subsidiaries established to offshore innovation. While the relationship between formal institutions and MNE strategy has been the subject of considerable academic scrutiny, less is known about the role of informal institutions. We propose that the type of uncertainty precipitated by informal institutions is critical to understanding the strategic behavior of foreign-investing MNEs. We hypothesize that an MNE’s organizational control over a subsidiary will be contingent upon the type of informal institutional uncertainty encountered by the subsidiary. More specifically, we disaggregate the informal institutions construct and develop three new, more explicit, latent constructs – behaviorally-oriented informal institutions (BOII), technology-oriented informal institutions (TOII) and demand-oriented informal institutions (DOII). Our theory posits that while an increase in BOII distance will precipitate a preference for greater organizational control, heightened TOII and DOII distances will induce the opposite outcome – a preference for lower levels of organizational control.

The Role of the Family Institution in Economic Activity: Evidence from Indian Slum Households

Firms in impoverished settings exist largely outside of formal institutional boundaries; however, they are not void of institutional influence. We shed light on one of the most fundamental institutions, which we suggest governs much of economic activity in impoverished contexts: the family. We integrate institutional and resource-based theories to explicate the role of the family in impoverished business activity. We develop theory to explain how the family constrains entrepreneurial behavior through pressure to conform to accepted norms, yet enhances business performance through the provision of critical resources. We test our hypotheses using a unique sample of households and firms in Indian slums. Our paper contributes by developing theory on the role of informal institutions (the family) in business activity and providing a preliminary investigation into factors that may influence firm success in impoverished settings.

Institutional Determinants of Acquisition Strategies: The Role of Informal Institutions in Russia

We contribute to an improved understanding of the effects of informal institutions on local firms' acquisition behavior in an emerging economy context. We compare the different regions of the Russian Federation and propose that the continuity and autonomy of the regional leadership and interaction between businesses and local decision-makers through corrupt practices contribute to the emergence of an informal institutional context that is supportive of acquisitive growth. Results from an analysis of the behavior of 2,981 firms in 40 different regions of Russia during 2001-2008 support our predictions. We extend the existing research on institutional determinants of behavior and the importance of informal institutions for stability and predictability when businesses have to cope with formal institutional voids.

The Impact of Informal Institutions on MNE Strategy: Innovation Investments in Emerging Markets

This paper investigates how differences in the informal institutions prevailing in the home and host countries influence the foreign entry strategies of multinational enterprises (MNEs). While the relationship between formal institutions and MNE strategy has been the subject of considerable academic scrutiny, less is known about the role of informal institutions. Our theory contends that the type of uncertainty precipitated by informal institutions is critical to understanding the strategic behavior of foreign-investing MNEs. More specifically, we dis-aggregate the informal institutions construct and develop two new, more explicit, latent constructs – behaviorally-oriented informal institutions and technology-oriented informal institutions. Our theory posits that increased behavioral informal institutional distance will precipitate a preference for full ownership (WOS) and a greater proportion of expatriates in subsidiary investments. Conversely, heightened technological informal institutional distance will predict the opposite outcome – a preference for shared ownership (JV), host country partners rather than home country partners and a smaller proportion of expatriate employees. We test our theory using a longitudinal sample of subsidiary investments that were established in emerging markets for the purpose of engaging in innovation–related activities. The results provide support for our conceptualization of informal institutions and the construct’s relationship with the entry strategies of foreign-investing MNEs.

Economic growth and individualism: The role of informal institutions

This paper shows that the degree of ancestral individualism is positively related to annual earnings across second-generation US immigrants. This provides evidence in favor of Gorodnichenko and Roland’s (2011b) hypothesis that the individualistic dimension of culture is important for long-term economic growth.

Unwritten Rules: Informal Institutions in Established Democracies

Scholars of the developing world have driven a surge of interest in unwritten or informal institutions as determinants of political outcomes. In advanced industrial democracies, by contrast, informal institutions often remain consigned to the analytic margins. This article makes a case for greater attention to informal political institutions in established democracies, and it introduces a theoretical framework to support such analysis. Informal institutions, understood as the unwritten rules of political life, are seen to perform three functions: they complete or fill gaps in formal institutions, coordinate the operation of overlapping (and perhaps clashing) institutions, and operate parallel to formal institutions in regulating political behavior. These three roles of informal institutions are associated with different characteristic patterns of institutional stability and change. The article illustrates its theoretical framework with case studies from American politics, the subfield in which formal-institutional analysis has flourished most. These cases are the historical norm of a two-term presidency (a completing institution), the unwritten rules of the presidential nomination process (coordinating institutions), the informal practice of obstruction in the Senate (a parallel institution), and the normative expectation that presidents should address the public directly (which performs all three functions).

Larger Prey, More Predators: Culture as a Constraint on Expropriation

Reading what several economic historians say on the industrial revolution suggests a puzzle concerning economic growth: while historians say that around the time of the industrial revolution property rights security did not improve, economists keep saying that this is the most important factor in economic growth. This leads us to examine the role of culture, and this is what this paper intends to do. “Good” culture is interpreted as an ideology of freedom that implies a negative attitude toward rent-seeking. Incorporating this idea into a simple model of technology diffusion, it becomes possible to differentiate between two roles of informal institutions, and between exogenous and endogenous changes in property rights security. The most important prediction is that these two will have a different effect on the spread of technology. The result can be seen as a contribution to the literature on how different institutions affect economic development.

Informal institutions as mechanisms to address challenges in communal grazing land management in Tigray, Ethiopia

The role of institutions providing rules, norms and regulations, in addressing challenges in communal resources management has been debated for several decades. This article analyses the role of informal institutions for addressing shortage of grazing land, conflicts among users of communal grazing land and resistance among users to shift from free grazing to zero grazing in Tigray, Ethiopia. We used in depth interviews and focus group discussions for data collection. We argue that informal institutions are important mechanisms for addressing the challenges in communal grazing land management. The contributions of informal institutions for addressing challenges in communal grazing lands varied with type of challenge and were influenced by distances from markets and Wereda towns. Although the informal institutions were crucial in reversing the shortage of grazing land by regulating access to communal grazing land and enhancing controlled use of grass, they did not contribute to resolving conflicts that arose from unequal allocation of benefits in the village far from a market and Wereda town. Incorporating zero-grazing practices in informal institutions was hindered by disagreements among users and the top-down approach used by development agents when introducing zero grazing. To enhance effectiveness of informal institutions, the increasing grazing pressure should be addressed using more efficient schemes for harvesting grass. Moreover, creating awareness of the need for fewer but more productive cattle breeds is crucial. Consideration of well-performing informal institutions in policy and development interventions is essential to maximise the benefits of communal grazing lands to improve livelihoods of users.

Mainstreaming the Adaptations and Reducing the Vulnerability of the Poor Due to Climate Change

Many rural poor people in developing countries depend on agriculture and are highly influenced by climatic change. Adaptation to climate change impacts is increasingly being observed in both physical and ecological systems as well as in human adjustments to resource availability and risk at different spatial and societal scales. This paper reviews some of the options for reducing the vulnerability of the poor through integrated climate change adaptation strategies. The paper explains the climate change effects on agricultural production, adoption experiences in the context of sustainable livelihoods, integration of structural and nonstructural measures, amelioration effects and their costs, and the role of informal institutions in implementation.

Networks, Collective Action, and State Formation

The study of state formation often focuses on building state capacity. The formation and subsequent bolstering of state capacity, however, are distinctly different activities. While the study of state capacity building has provided considerable insight into the role of formal institutions in maintaining stable governance, the implicit assumption in this work is the existence of a state upon which to build capacity. The collective decision to formalize institutions into a state - a necessary prior condition for building state capacity - is rarely addressed. In the following paper the role of informal institutions; specifically, social networks as informal institutions, in the process of state germination is explored. Using Afghanistan as a framework for the discussion, the research presented below attempts to illustrate the importance of the initial structural conditions of these networks, and the actors therein, in this process. The paper begins with a brief description of the role of informal institution and social networks in Afghanistan. Next, a provision point public goods game is presented as a basic model of the collective action problem inherent in state formation. Then, a network variant of this game is presented, which is implemented as a computational model. In the final sections the results of simulations from the computational model are presented, with a discussion and conclusions.

The role of informal institutions in corporate governance: Brazil, Russia, India, and China compared

This paper argues that the role of informal institutions as well as formal ones is central to understanding the functioning of corporate governance. We focus on the four largest emerging economies: Brazil, Russia, India, and China—commonly referred to as the BRIC countries. Our analysis is based on the Helmke and Levitsky framework of informal institutions and focuses on two related aspects of corporate governance: firm ownership structures and property rights; and the relationship between firms and external investors. We argue that for China and some states of India, “substitutive” informal institutions, whereby informal institutions substitute for and replace ineffective formal institutions, are critical in creating corporate governance leading to enhanced domestic and foreign investment. In contrast, Russia is characterized by “competing” informal institutions whereby various informal mechanisms of corporate governance associated with corruption and clientelism undermine the functioning of reasonably well set-out formal institutions relating to shareholder rights and relations with investors. Finally Brazil is characterized by “accommodating” informal institutions which get around the effectively enforced but restrictive formal institutions and reconcile varying objectives that are held between actors in formal and informal institutions.

The Role of Informal Institutions in U.S. Immigration Policy: The Case of Illegal Labor Migration from Kyrgyzstan

Immigration is a sensitive topic on the American political, social, and economic agenda. Globalization as well as the end of the Cold War have meant that people are on the move worldwide as never before. Millions of people from poor countries migrate to richer ones to provide better lives for themselves and their families through legal and illegal channels. Heated debates surround this subject. A dramatic divide persists between proponents, who equate immigration policy with civil rights, and opponents, who cite the burden of illegal immigration on public education and public welfare systems. The author argues that informal institutions involved in migration processes, such as migrant smuggling networks, explain why the current crisis persists. The role of informal institutions is examined by focusing on those who migrate from Kyrgyzstan to the United States seeking low‐wage labor. The author generalizes how formal and informal institutions interact in the processes of migration and how informal institutions decisively influence immigration‐related policies in the United States.

The role of informal institutions for the sustaineble use of fragmented farmland in Bulgaria

The role of informal institutions for the sustaineble use of fragmented farmland in Bulgaria

Building Social Capital in Hong Kong by Institutionalising Participation: Potential and Limitations

This paper draws on ethnographic research in Hong Kong to question the effectiveness of Elinor Ostrom's `design principles' in providing solutions to social divisions by social capital building and institutionalised participation. It challenges the strategic and instrumental assumptions of human motivations for not adequately considering moral concerns, a sense of commitment and the right way of doing things in social cooperation. The tendency to formalise the process of participation, by authority building, rule enforcement and threat of sanction, plays down the role of informal institutions in mediating modes of interactions. The practices of good governance can undermine the already-limited social capital of poor people. This paper concludes by offering the `agency—institutions—structures' framework in analysing social capital.

GLOBAL MARKETS, FARMERS AND THE STATE: SUSTAINING PROFITS IN THE INDONESIAN COCOA SECTOR

The rapid expansion of cocoa farming among Sulawesi smallholders since 1980 has transformed the island into a hub within the global cocoa industry. It hosts a number of multinational trading firms and has an expanding grinding sector. In recent years, however, the cocoa sector has been struck by severe pest, disease and quality problems, which are undermining the long-term sustainability of one of Eastern Indonesia's most important rural industries. Some form of intervention is needed if the cocoa industry is to avoid steady decline. This paper examines the role of informal institutions, cocoa multinationals and government in attempts to maintain farm profits in Sulawesi.

Venture Capital in Emerging Economies: Networks and Institutional Change

Emerging economies are characterized by fundamental and comprehensive institutional transformations as their economies begin to mature. How venture capitalist functions in environments that differ so fundamentally from those of the mature markets where venture capital was initially developed has only begun to be addressed. This article builds a framework to further the understanding of venture capital practice in emerging markets. Specific attention is focused on the impact of networks in the model, in particular, how networks and other informal institutions can act to supplement or replace formal institutions when they are weak. The article goes on to examine what the implications are for venture capital and the role of informal institutions in emerging economies as formal institutions become more established. The research and resulting model is grounded in 65 semistructured interviews with venture capitalists in emerging economies around East Asia. This article contributes to the literature by drawing attention to the impact of networks and changing institutional environments on venture capital during different phases of an economic transition process in emerging economies. The findings have implications for understanding institutional impact on venture capital activity as well as entrepreneurs and entrepreneurial ventures that seek venture capital financing in emerging economies.

Book Review: Arnulfo, Valdivia-Machuca, State and Business Groups in Mexico: The Role of Informal Institutions in the Process of Industrialization, 1936-1984.

Book Review: Arnulfo, Valdivia-Machuca, <i>State and Business Groups in Mexico: The Role of Informal Institutions in the Process of Industrialization, 1936-1984.</i>