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Institutional Quality and International Differences in Firm Productivity

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  • Issar Akash
  • Lim Jamus Jerome
  • Mohapatra, Sanket

Abstract

In this paper, we examine how firm-level productivity growth is dependent on a broad range of institutional quality measures at the country level. Using a sample of 3,446 firms in 58 advanced and emerging economics, we show that such institutions exert a statistically and economically significant effect on changes in firm TFP. We utilize data envelopment analysis to construct firm-level measures of Malmquist productivity, which we then condition on a range of country-level institutions, using both a full set of fixed effects and system generalized method of moments to address potential endogeneity concerns. The baseline effect is robust to alternative measures of institutions, variations in model specification, alternative temporal aggregations, and the inclusion of external instruments. Additional decompositions further reveal that the institutional effect operates via improved productive efficiency (rather than technological progress), and that the key institutions are those associated with rule of law and regulatory quality

Suggested Citation

  • Issar Akash & Lim Jamus Jerome & Mohapatra, Sanket, 2017. "Institutional Quality and International Differences in Firm Productivity," IIMA Working Papers WP 2017-02-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
  • Handle: RePEc:iim:iimawp:14558
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    References listed on IDEAS

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    1. William W. Olney, 2016. "Impact Of Corruption On Firm-Level Export Decisions," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 1105-1127, April.
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