Weak Institutional Environment Research Articles

Institutions and Entrepreneurship Development in Russia: A Comparative Perspective

In this paper we use a comparative perspective to explore the ways in which institutions and networks have influenced entrepreneurial development in Russia. We utilize Global Entrepreneurship Monitor (GEM) data collected in 2001 and 2002 to investigate the effects of the weak institutional environment in Russia on entrepreneurship, comparing it first with all available GEM country samples and second, in more detail, with Brazil and Poland. Our results provide strong evidence that Russia's institutional environment is important to explain its relatively low levels of entrepreneurship development, where the latter is measured in terms of both number of start-ups and of existing business owners. In addition, Russia's business environment contributes to the relative advantage of entrepreneurial insiders (those already in business) to entrepreneurial outsiders (newcomers) in terms of new business startups.

Institutions, Networks and Entrepreneurship Development in Russia: An Exploration

In this paper we explore the ways in which institutions and networks influence entrepreneurial development in Russia. By utilizing new Global Entrepreneurship Monitor (GEM) data collected in 2001, we investigate the effects of the weak institutional environment in Russia in terms of three dimensions: on the rate of productive entrepreneurial activity measured in terms of start-ups and existing business owners; on the characteristics of business owners; and on business financing. In addition, the analysis explores the effectiveness of Russia’s informal networks for circumventing the weak institutional environment for business development. Our results indicate that Russia’s business owners share many of the same characteristics as business owners in advanced western countries, though education is not associated with entrepreneurial activity. However, the main differences are in the sources of financing and the fact that relatively few individuals engage in productive entrepreneurial activity. Our results support the notion of the limited effectiveness of Russia’s networks for supporting entrepreneurial activity in its weak institutional environment.

Institutions, Networks and Entrepreneurship Development in Russia: An Exploration

In this paper we explore the ways in which institutions and networks influence entrepreneurial development in Russia. By utilizing new Global Entrepreneurship Monitor (GEM) data collected in 2001, we investigate the effects of the weak institutional environment in Russia in terms of three dimensions: on the rate of productive entrepreneurial activity measured in terms of start-ups and existing business owners; on the characteristics of business owners; and on business financing. In addition, the analysis explores the effectiveness of Russia’s informal networks for circumventing the weak institutional environment for business development. Our results indicate that Russia’s business owners share many of the same characteristics as business owners in advanced western countries, though education is not associated with entrepreneurial activity. However, the main differences are in the sources of financing and the fact that relatively few individuals engage in productive entrepreneurial activity. Our results support the notion of the limited effectiveness of Russia’s networks for supporting entrepreneurial activity in its weak institutional environment.

Changes in the recruitment patterns of the economic and political elites in Serbia

In this paper the changing patterns of economic and political elite recruitment in Serbia are studied on the basis of three sets of data, collected in our surveys done in 1989, 1993 and 2004. Our hypothesis was that elite recruitment patterns changed after the political regime change in 2000, but in a different direction compared to the period of the 1990s. From a long-term perspective, we expect continuing increases in the relevance of higher education for elite recruitment, and equalization of the relevance of higher education for both the political and economic elites. On the other hand, we expect decreasing relevance for political affiliation among the economic elite, accompanied by an increasing importance of social networking during the period of a prolonged weak institutional environment. In order to test our general hypothesis we describe inter- and intra-generational patterns of recruitment. The relevance of education, party membership and networking as mobility channels is analyzed by model of logistic regression. We also compare changes in patterns of elites? recruitment with changing mobility patterns of social classes in Serbia, 1989-2004.

Trust, Governance and Performance

This article explores the relationship between trust and control by investigating the direct and indirect effects of different types of trust on company performance. A survey of small and medium size firms in Slovenia and Bosnia-Herzegovina is used to demonstrate how the level of trust entrepreneurs have in institutions and business partners influences the choice of governance mechanisms that coordinate economic activities among actors. The article shows that the institutional environment in Slovenia generates more trust, which enables actors to base their business relationships on trust rather than contract. In addition, when actors rely on trust it is usually institutional trust rather than interpersonal trust. In contrast, Bosnia, with a weaker institutional environment, generates less trust, leading actors to base their economic relationships on contract. However, when trust is used in Bosnia as a basis of business relationships it is likely to be centred on interpersonal trust. These results have important implications for the understanding of the process by which trust affects economic performance. The use of institutional trust as a basis for a governance mechanism may lead to increased economic performance of companies due to the inclusive nature of sociability patterns and tie formation since institutions generalize trust beyond a specific set of exchange partners. The use of interpersonal trust may limit economic potential due to its reliance on strong ties embedded within cohesive groups marked with closure.

From Government to Regulatory Governance: Privatization and the Residual Role of the State

This paper reviews the state of thinking on the governance role of public ownership and control. We argue that the transfer of operational control over productive assets to the private sector represents the most desirable governance, due to the inherent difficulty for citizens to constrain political abuse relative to the ability of governments to regulate private activity. However in weak institutional environments the process needs to be structured so as to avoid capture of the regulatory process. The speed of transfer should be timed on the progress in developing a strong regulatory governance system, to which certain residual rights of intervention must be vested. After all, what are if not governance mechanisms with some degree of autonomy from both political and private interests? The gradual creation of institutions partially autonomous from political power must become central to the development of an optimal mode of regulatory governance. We advance some suggestions about creating accountability in regulatory governance, in particular creating an internal control system based on a rotating board representative of users, producers and civil society, to be elected by a process involving frequent reporting and disclosure.

International evidence on the value of deposit insurance

The goal of this paper is to improve our understanding of the costs and benefits of explicit deposit insurance. To this end, we compare the opportunity-cost value of deposit insurance services for a large sample of banks drawn from countries with or without explicit deposit insurance. After correcting for certain bank- and country-specific factors, we find that the existence of explicit deposit insurance raises the opportunity-cost value of deposit insurance, but that the presence of a sound legal system with proper enforcement of rules reduces the adverse effects of explicit deposit insurance on the opportunity-cost value of deposit insurance services. Our findings suggest that moral hazards and other incentive problems created by existing governmental deposit insurance schemes differ in magnitude between different types of banks and among different countries, and that explicit deposit insurance should not be introduced in countries with weak institutional environments.

Decentralization in Financial Institutions: Theory and Evidence from China

Decentralization facilitates more efficient use of local information but also can lead to agency problems and commitment failures. This paper develops simple models of a two-tier hierarchy (the center vs. the local) to study the optimal division of lending authority between central and local bank managers. Using a unique data set collected by the authors from a survey of rural financial institutions in China, we empirically assess the determinants of decentralization. We find that concerns over agency problems (collusion and government influence) and especially commitment failures (excessive refinancing) explain the recent trend toward centralization of lending authority. We conclude that the inability of financial systems to exploit local information in weak institutional environments may substantially limit the efficiency of financial intermediation despite financial market liberalization.

Czech enterprises: the barriers to restructuring

Much of the literature on changes in Czech enterprises has been developed around a neo-classical framework with the emphasis on the effects of hard budget constraints and privatization. That, however, provides a limited view of the choices available to enterprises and of the constraints that have been imposed by a weak institutional environment, an often inappropriate policy framework and an approach to privatization that has, in a number of different ways, made subsequent rationalization and modernization more difficult. The effects on, and changes in, enterprises are analysed around experience in four different sectors; light industry, engineering and transport equipment, milk-processing and brewing. This points to the need to place more emphasis on enterprise access to financial resources for modernization and, above all, on the ability of managements to formulate coherent and appropriate long-term strategies. It also points to the desirability of a more active policy framework.