Does Institutional Quality Affect Firm Performance? Insights from a Semiparametric Approach
AbstractUsing 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.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6351.
Length: 30 pages
Date of creation: Feb 2012
Date of revision:
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Other versions of this item:
- Sumon Bhaumik & Ralitza Dimova & Subal C. Kumbhakar & Kai Sun, 2012. "Does Institutional Quality Affect Firm Performance? Insights from a Semi-Parametric Approach," William Davidson Institute Working Papers Series wp1029, William Davidson Institute at the University of Michigan.
- C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
- O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-27 (All new papers)
- NEP-BEC-2012-02-27 (Business Economics)
- NEP-EFF-2012-02-27 (Efficiency & Productivity)
- NEP-HME-2012-02-27 (Heterodox Microeconomics)
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