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Abstract

This paper revisits the effects of a countrys institutional framework on individual firms behavior, in particular focusing on their propensity to comply with legal rules. The theoretical model presented here suggests that these effects may be of paramount significancecontrary to the recently popularized paradigm arguing that differences across countries have ceased to matter much. This papers empirical strategy consists of explaining the variation in measures of non-compliance with legal rules and employs a rich dataset based on thousands of firms from dozens of countries. We find that most of the variation emanates from country-wide differences in institutional quality, although some firm characteristics play a role as well. Our conclusion is that countries still matter in providing institutional infrastructure, which determines to a large extent the context within which firms operate.

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File URL: http://www.iadb.org/research/pub_hits.cfm?pub_id=WP-584&pub_file_name=pubWP-584.pdf
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Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4488.

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Date of creation: Dec 2006
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Handle: RePEc:idb:wpaper:4488

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1. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Juan Botero, 2003. "The Regulation of Labor," NBER Working Papers 9756, National Bureau of Economic Research, Inc.
   
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   • Dabla-Norris, Era & Gradstein, Mark & Inchauste, Gabriela, 2008. "What causes firms to hide output? The determinants of informality," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 1-27, February.
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9. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
10. Rene M. Stulz & Craig Doidge & Andrew Karolyi, 2004. "Why Do Countries Matter So Much for Corporate Governance?," NBER Working Papers 10726, National Bureau of Economic Research, Inc.
    
    • Doidge, Craig & Andrew Karolyi, G. & Stulz, Rene M., 2007. "Why do countries matter so much for corporate governance?," Journal of Financial Economics, Elsevier, vol. 86(1), pages 1-39, October.
    • Doidge, Craig & Karolyi, G. Andrew & Stulz, Rene M., 2004. "Why Do Countries Matter So Much for Corporate Governance?," Working Paper Series 2004-16, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
11. Acemoglu, Daron & Johnson, Simon & Robinson, James A, 2004. "Institutions as the Fundamental Cause of Long-Run Growth," CEPR Discussion Papers 4458, C.E.P.R. Discussion Papers.
    
    • Daron Acemoglu & Simon Johnson & James Robinson, 2004. "Institutions As The Fundamental Cause Of Long-Run Growth," DOCUMENTOS CEDE 002889, UNIVERSIDAD DE LOS ANDES-CEDE.
    • Daron Acemoglu & Simon Johnson & James Robinson, 2004. "Institutions as the Fundamental Cause of Long-Run Growth," NBER Working Papers 10481, National Bureau of Economic Research, Inc.
12. R. Hirschowitz, 1989. "The Other Path: The Invisible Revolution in the Third World," South African Journal of Economics, Economic Society of South Africa, vol. 57(4), pages 266-272, December.
13. Daniel Berkowitz & Johannes Moenius & Katharina Pistor, 2006. "Trade, Law, and Product Complexity," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 363-373, May.
14. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472 Elsevier.

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