College of Behavioral & Social Sciences

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    Essays on Intitutional Governance
    (2011) Hu, Bingjie; Murrell, Peter; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This thesis consists of three chapters on the choice of institutional governance. The first chapter provides empirical evidence on the effect of local norms on the contractual choice, using a comprehensive dataset on US agricultural leasing contracts. We focus on the choice between cash-rent and share-rent contracts and examine whether the prevalence of share-rent contracts has an effect on contractual choice. We use a generalized spatial two-stage least squares approach to address endogeneity issues. Our results show that there is a strong tendency for agents to choose the contractual form that conforms to local norms. Our study also suggests that share-rent contracts are more likely to be chosen when there is a higher likelihood or more severe consequence of opportunistic behavior by agents. This suggests that share contracts reduce transaction costs by helping to foster a productive governance atmosphere for the contracting parties. The second chapter explores whether the choice of institutions depends on the historical experience and the stock of knowledge of economic agents. We provide firm-level evidence on the choice of between legal and relational governance, in the context of the transition economy of Romania. Our results show that previously state-owned businesses are more likely to rely on legal governance than other firms. We also find evidence that the legal knowledge held by firm managers affects the choice of governance, which is consistent with the path-dependence theory of institutional development. The third chapter is based on a cross-country study of the link between public spending on health care, quality of institutional governance and child health outcomes. We show that both public spending on health care and the quality of governance matter for the reduction of child and infant mortality rates.
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    Power Sharing or Power Hoarding? Conflict and Democratic Breakdown in Nigeria and Lebanon
    (2010) Milligan, Margaret (Maren); Lichbach, Mark I; Government and Politics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    Power-sharing institutions--organized around the principle of group representation--have re-emerged in recent decades throughout the world. From Iraq to Afghanistan, "power-sharing" has again become a preeminent solution to ethnic and/or electoral conflict. This approach--including the variant of "consociationalism"--has long been critiqued for either strengthening inter-elite ties at the expense of mass-level linkages or working only in societies already committed to inter-group cooperation or conciliation. What these critiques miss--and dangerously so for the countries now undergoing the power-sharing treatment--is that the organization of politics around group representation is inherently unstable. This dissertation traces the impact of institutionalized group representation in two very different staples of the power-sharing literature: Nigeria and Lebanon. Although these mixed Muslim-Christian countries differ in nearly every respect considered relevant in the institutional design literature (electoral system, de/centralized government, party law regulation, size, colonial power, and region) they experience strikingly similar cycles of conflict and democratic breakdown. The dissertation argues that, rather than being a conflict resolution technique of relatively recent provenance, power-sharing is rooted in the exigencies of imperial rule. In doing so, it examines the emergence of ethnic federalism and confessionalism in colonialism in Nigeria and Lebanon. The dissertation then models how institutionalized group representation leads to conflict and democratic breakdown. Drawing on sociology, the dissertation draws on Charles Tilly's model of "Democracy." He argues that democracy operates in a self-reinforcing virtuous circle through three interlocking mechanisms: integration of trust networks, reduction in categorical inequalities and removal or autonomous bases of power. This dissertation argues that, by definition, power sharing promotes the opposite mechanisms: "opportunity hoarding," "category formation," and "certification." The operation of these three mechanisms leads to vicious cycles of conflict and democratic breakdown. The dissertation traces the operation of these three mechanisms focusing on two nested clusters of "groups" since the early 1990s: North/Middle Belt/Jasawa in Nigeria and Muslim/Shi'a/Alawi in Lebanon. Based on this examination of Nigeria and Lebanon, the dissertation argues that "group representation" regimes will lead to cycles of conflict and democratic breakdown and should not be viewed as a conflict panacea.
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    Essays in International Finance
    (2008-01-23) Daude, Christian; Mendoza, Enrique G.; Vegh, Carlos A.; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    Access to private capital markets is the most salient difference between emerging market economies and other developing countries. However, in contrast to developed economies, emerging markets have had a troubled relationship with capital fows. In particular, balance of payments and debt crises have been a recurrent problem. The three chapters of this dissertation contribute to the literature on emerging markets and their relationship with capital markets. Chapter 1 analyzes the effects of volatility on sovereign default risk. Empirically, the paper establishes a concave relationship between spreads and volatility. While for low levels of volatility an increase in volatility is associated with an increase in the sovereign risk premium, the risk premium increases at a decreasing rate. This empirical relationship is robust to different estimation methods, sam- ples and control variables. Furthermore, the relationship between volatility and risk premia is non-monotonic: while at low levels of volatility an increase in volatility implies an increase also in spreads, for sufficiently high levels of volatility this relationship turns negative. The chapter also presents a quantitative model of sovereign debt with default risk consistent with this feature and other characteristics of EME debt. The intuition for this result is the existence of a trade-off between prudential behavior in order to avoid large consumption fluctuations under autarky and the increased likelihood of a default, given default provides some short-run relief under a very bad realization of shocks. Chapter 2 addresses the determinants of the composition of cross-border investment positions. Using a novel database of bilateral capital stocks for all types of investment - FDI, portfolio equity securities, debt securities as well as loans - for a broad set of 77 countries, we show the importance of two key determinants of the composition of cross-border asset positions: information frictions and the quality of host country institutions. Overall, we find that in particular FDI, and to some extent also loans, are substantially more sensitive to information frictions than investment in portfolio equity and debt securities. We also show that the share as well as the size of FDI that a country receives are largely insensitive to corruption in host countries, while portfolio investment is by far the most sensitive to the quality of institutions. Chapter 3 focuses on a related topic to chapter 2. Using bilateral FDI stocks around the world, we explore the importance of a wide range of institutional variables as determinants of the location of FDI. While we find that better institutions have overall a positive and economically significant effect on FDI, some institutional aspects matter more than others do. Especially, the unpredictability of laws, regulations and policies, excessive regulatory burden, government instability and lack of commitment play a major role in deterring FDI. For example, the effect of a one standard deviation improvement in the regulatory quality of the host country increases FDI by a factor of around 2. These results are robust to different specifications, estimation methods and institutional variables. We also present evidence on the significance of institutions as a determinant of FDI over time.
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    Empirical Essays in Comparative Institutional Economics
    (2007-05-02) Mukashev, Yerzhan Bulatovich; Murrell, Peter; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    Essay 1 investigates an empirical link between institutional variables and the performance of firms based on cross-country firm-level survey data. Current empirical evidence based on this type of data is unsatisfactory because employing survey responses as direct measures of institutional concepts and using those to analyze the effects of institutions at the firm level would limit the researcher to findings only within countries effects. This happens at the expense of losing inherent cross-country variation in institutions. Essay 1 offers a simple conceptual framework that decomposes survey responses for each firm into the average of their country and a residual firm-specific component. Importantly, the estimation results indicate that both variations have clearly different effects on growth of sales of firms. Essay 2 estimates the causal effects of economic shocks on the incidence of politically destabilizing events. The estimation is difficult due to the joint endogeneity between economic growth and events related to the political environment, which is addressed by the instrumental variable method. The variation in oil prices is used as an instrument for economic growth in the sample of small oil importing economies during 1960 - 1999. In contrast to a common belief and OLS estimates, the most striking finding of the IV estimation is that higher economic growth has a strong and robust positive effect on the incidence of relatively peaceful unrest such as demonstrations, strikes and riots. Essay 3 studies the question of differences in economic growth rates between Democratic and Republican governorships in the United States. The question is difficult to answer by simply comparing growth rates because the party affiliation is not randomly selected during elections. The empirical analysis employs the Regression Discontinuity Method to address the endogeneity in the party control variable. Focusing on very close elections permits the generation of quasi-experimental estimates of the impact of a "randomized" change in party control at the 50 percent threshold. When comparing Democratic with Republican governorships, the results are suggestive about the possibility of slightly worse performance of Democratic governors but the lack of statistical significance does not fully support this evidence.
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    INEQUALITY, INSTITUTIONS AND REDISTRIBUTION
    (2005-07-29) Aysan, Ahmet Faruk; Betancourt, Roger; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This dissertation explores the role of efficiency of redistributive institutions (ERI) on redistribution. The first substantive essay proposes a theoretical model to explain the lack of strong empirical evidence in favor of a positive relationship between income inequality and redistribution. This chapter first shows that even exogenously given ERI affects the relationship between income inequality and redistribution. Then, it introduces three specifications to endogenize ERI. In these various specifications, increasing inequality reduces the ERI when (1) ERI is an increasing function of average income or (2) political influence on ERI is positively associated with income or (3) the median voter has some prospect of upward mobility. There is one common element in these various specifications. While income inequality increases the pressure for redistribution it also increases the incentive to reduce the efficiency of redistribution in order to constrain aggregate redistribution. Hence, the main conclusion is that one needs consider these conflicting effects in order to account for the puzzling lack of strong empirical evidence for a positive relationship between income inequality and redistribution. The second substantive essay empirically analyzes the role of efficiency of redistributive institutions on redistribution in the form of social security and welfare spending. When measures of ERI are incorporated into the existing empirical specifications of income inequality and redistribution, cross-sectional and panel data regressions show that the ERI significantly increases redistribution. However, we find weaker evidence for the role of income inequality on redistribution. Income inequality does not appear to be strongly significant in various specifications of the redistribution equation. Based on this evidence, this chapter concludes that ERI plays an important role in redistribution but this effect does not resolve the fiscal policy puzzle that is emphasized in the theoretical chapter. Moreover, this chapter also explores the determinants of ERI. Our empirical results confirm the theoretical model that an increase in GDP per capita and democracy increases ERI. However, there is less convincing evidence for the negative role of income inequality on the ERI. Among the other determinants of ERI, freedom of the press and trade openness improve ERI considerably.
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    The Big Issue of Small Businesses: Contract Enforcement in the New Russia
    (2005-06-08) Vinogradova, Elena; Kestnbaum, Meyer; Sociology; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    The dissertation explores the problem of institution-building in nascent capitalist economies, with the emphasis on the role of culture in the genesis of new institutional forms. To help better understand the nature of the post-communist transformation in Russia, I address the questions of organizational adaptation and change in business practices resulting from the changing role of the state in the economy and society, focusing specifically on the problem of contract enforcement among small firms. The main source of data was the empirical research that I conducted in St.Petersburg, Russia, where I interviewed owners and/or managers of forty-five firms in 2001 and 2002. When firms perceive state institutions as unable to guarantee the enforcement of contracts and property rights, they rely on alternative (non-state) ways of enforcing their agreements. My research shows that these strategies can be either based on a given firm's own resources (financial or social), or come from various agencies that offer enforcement services for sale, which vary from government licensed private courts to criminals. Non-state enforcement strategies are rooted in preexisting institutions and cultural practices, and develop in response to specific kinds of state failure to provide contract enforcement. My research findings demonstrate a proliferation of non-state strategies of contract enforcement and dispute resolution, as well as the significance that state contract enforcement institutions have for economic exchange and building of market institutions. The lessons concerning the powerful structuring role of enforcement institutions which my dissertation draws from Russian experience have wider implications not only for analysis but also for policy, and contributes to the literature on the role of the state in capitalist development, and cultural neo-institutionalism. The evidence that I have collected contradicts the neo-liberal belief in the sufficiency of self-regulating markets for the smooth functioning of an economy. It supports an argument that that the capability to provide independent enforcement services for businesses is an indispensable feature of the modern state, and essential to the creation of successful modern capitalism. This is an argument of central importance not only for developing and "transition" countries, but for the long-term future of developed societies as well.
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    Essays in Trade and Development
    (2004-08-09) Roy, Devesh; Panagariya, Arvind; Economics; Digital Repository at the University of Maryland; University of Maryland (College Park, Md.)
    This dissertation involves two set of papers. The first chapter contains a brief introduction of the issues covered in this thesis. In the first set of papers (chapters 2 and 3) I investigate the use of product standards in international trade. Product standards relate to restrictions on the attributes of a product that must be satisfied before the product becomes eligible to be sold in a particular market. The World Trade Organization ruling on product standards requires member countries to apply equal standards on the home produced good and the imported good. This is called the national treatment rule. In the first part of the dissertation (Chapters 2 and 3) I analyze the role of national treatment rule in the case of product standards. Chapter 4 evaluates the growth experience of Mauritius in the light of the explanations put forward in the empirical growth literature. As an African country Mauritius stands out as an exception, not only having a much higher growth rate than an average African country but also maintaining growth as a sustained phenomenon. I demonstrate that this exceptional growth performance of Mauritius has occurred because of some unique institutional features of Mauritius, making it different from the rest of Africa.