Empirical Essays in Comparative Institutional Economics

Abstract

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.