Empirical Analysis of Institutions Across Countries and Regions

Paper Session

Friday, Jan. 6, 2017 2:30 PM – 4:30 PM

Sheraton Grand Chicago, Michigan AB
Hosted By: Association for Comparative Economic Studies
  • Chair: Michael Alexeev, Indiana University

Trade Patterns and Endogenous Institutions: Global Evidence

Richard Frensch
,
IOS Regensburg
Roman Horvath
,
Charles University in Prague
Stephen Huber
,
University of Regensburg

Abstract

We propose a novel way to measure the rule of law intensity of exports at the goods level based on nearly 100 million disaggregated bilateral trade flows around the globe. We categorise goods into three groups: fragmented, primary and other. The theoretical literature on hold-up problems connected to incomplete or incompletely enforceable contracts or property rights predicts that goods resulting from fragmented production processes should be the most rule of law intensive. However, we find that the rule of law intensity of other goods is, on average, only slightly lower than that of fragmented goods. We examine how exogenous variation in countries' trade patterns influences the quality of institutions. Our regressions show that trade flows generated by fragmented and other processes of production improve rule of law, while trade flows generated by primary production do not.

Steps of Contract Enforcement: The Lawyer’s Guide for the Applied Economist

Miriam Frey
,
Institute for East and Southeast European Studies
Stela Ivanova
,
Institute for East European Law

Abstract

The recent empirical literature on international trade has highlighted the importance of the
quality of institutions as trade flows and trade patterns react to legal settings. Economists usually refer to these institutions as the rule of law. This concept encompasses various aspects of legal institutions such as property rights, corruption and contract enforcement. At the same time, the rule of law is often only covered by a single indicator in empirical economic studies. This allows the researcher to get a good sense of the overall legal situation in a country but also implies that more details on the different aspects of the rule of law are lacking. We argue that it is worth to have a closer look especially at the different steps of contract enforcement (1. constitution of rights and obligations in the phase of contract drafting 2. ways to a judgment 3. enforcement of a judgment) when studying international trade issues as transnational contracts on the delivery of goods and services require an interaction between the legal systems of different countries.
Therefore, the aim of this paper is to critically asses the role of the enforceability of transnational
contracts in empirical trade analyses.

Institutions and Allocation of Talent in Russia’s Regions

Michael Alexeev
,
Indiana University
Timur Natkhov
,
National Research University Higher School of Economics
Leonid Polishchuk
,
National Research University Higher School of Economics

Abstract

Strong institutions attract talent to productive activities whereas weak institutions raise the appeal of redistribution. We present a model that predicts that more talented individuals are particularly sensitive in their career choices to the quality of institutions, and test these predictions using 2011-2014 data containing enrollments of individuals in Russia’s regions in different disciplines combined with Uniform State Examination (USE) scores of these individuals. We find strong positive association between the quality of regional institutions and matriculation of individuals with high USE scores in sciences and engineering while poor institutional quality is associated with greater likelihood of high ability individuals to matriculate in law and public administration. Following other studies in the allocation of talent literature, we argue that science and engineering skills tend to be associated with productive activities while law and public administration education is relatively more suited to redistributive and rent-seeking activities, including activities that provide protection against redistribution away from current owners.

Human Capital and Regime Change

Brian M. Scholl
,
Institute for the Study of Labor

Abstract

I develop a model and empirical facts about regime change and the links to human capital and institutions within a framework that assigns primacy to institutions. Weak institutions allow bad regimes to misallocate economic resources and prevent agents from achieving their economic potential. The utility loss for an individual vis-à-vis outcomes obtained under better institutions and policies is a function of ability, acquired knowledge, and age – importantly, some features of human capital are institution-specific, meaning a costly transition for some agents. Agent heterogeneity aligns some agents with the status quo, while others press for change. The model introduces uncertainty, a continuum of non-elite heterogeneity and human capital into an Acemoglu and Robinson (2006) framework, and sustains both regime change attempt (with an uncertain outcome) and status quo as Nash equilibria. Conclusions differ slightly from Acemoglu and Robinson: agents rise up to institute a (modest) degree of inequality among non-elites. The model provides a pathway for human capital to interact with the institutional setting to promote both institutional transitions and better institutions including a role for civic skills, but it rejects the mechanisms proposed by Glaeser et al. (2007). Cross-country IV estimates provide evidence to support the main assumptions of the model. Because actual regime change events occur rarely, I construct a new cross-country panel of discontent intensity from daily international news event records from 1979-2012; fixed effect estimates identified off cohort changes and exogenous income shocks provide empirical support for the main forcing mechanisms of the model and tie together important stylized facts in related literature.
Discussant(s)
Andrei A. Levchenko
,
University of Michigan
Michael Alexeev
,
Indiana University
Richard Frensch
,
IOS Regensburg
Miriam Frey
,
Institute for East and Southeast European Studies
JEL Classifications
  • D2 - Production and Organizations
  • F4 - Macroeconomic Aspects of International Trade and Finance