Does institutional quality affect firm performance? Insights from a semiparametric approach

Research, Book, Preprint English OPEN
Bhaumik, Sumon ; Dimova, Ralitza ; Kumbhakar, Subal ; Sun, Kai (2012)
  • Publisher: IZA
  • Subject: C14 | D24 | marginal effect | K31 | textiles industry | institutional quality | institutional quality, firm performance, marginal effect, textiles industry | firm performance | O43
    • jel: jel:C14 | jel:D24 | jel:K31 | jel:O43
      ddc: ddc:330

Using a novel modeling approach, and cross-country firm level data for the textiles industry, we examine the impact of institutional quality on firm performance. Our methodology allows us to estimate the marginal impact of institutional quality on productivity of each firm. Our results bring into question conventional wisdom about the desirable characteristics of market institutions, which is based on empirical evidence about the impact of institutional quality on the average firm. We demonstrate, for example, that once both the direct impact of a change in institutional quality on total factor productivity and the indirect impact through changes in efficiency of use of factor inputs are taken into account, an increase in labor market rigidity may have a positive impact on firm output, at least for some firms. We also demonstrate that there are significant intra-country variations in the marginal impact of institutional quality, such that the characteristics of "winners" and "losers" will have to be taken into account before policy is introduced to change institutional quality in any direction.
  • References (22)
    22 references, page 1 of 3

    [1] Acemoglu, Daron & Johnson, Simon (2005). Unbundling institutions, Journal of Political Economy 113, 949-995.

    [2] Acemoglu, Daron & Shimer, Robert (2000). Productivity gains from unemployment insurance, European Economic Review 44, 1195-1224.

    [3] Arulampalam, Wiji & Booth, Alison L. (2002). Training and labour market exibility: Is there a trade o ? British Journal of Industrial Relations 36, 521-536.

    [4] Bhaumik, Sumon Kumar & Estrin, Saul (2007). How transition paths di er: Enterprise performance in Russia and China, Journal of Development Economics 82, 374-392.

    [5] Bhaumik, Sumon Kumar, Gangopadhyay, Shubhashis & Krishnan, Shagun (2008). Policy, economic federalism, and product market entry: The Indian experience, European Journal of Development Research 20, 1-30.

    [6] Botero, Juan et al. (2004). The regulation of labor, Quarterly Journal of Economics 119, 1339-1382.

    [7] Commander, Simon & Svejnar, Jan (2011). Business environment, exports, ownership, and rm performance, Review of Economics and Statistics 93, 309-337.

    [8] Dasgupta, Partha (1993). An Inquiry into Well-Being and Destitution, New York: Oxford University Press.

    [9] Dollar, David, Hallward-Driemeier, Mary & Mengistae, Taye (2005). Investment climate and rm performance in developing countries, Economic Development and Cultural Change 54, 1-31.

    [10] Eichengreen, Barry & Iversen, T. (1999). Institutions and economic performance: Evidence from the labour market, Oxford Review of Economic Policy 15, 121-138.

  • Metrics
    No metrics available
Share - Bookmark