Institutional Roots of State Failure

Ekaterina Kruglova (Lomonosov Moscow State University)
Lilia Valitova (Lomonosov Moscow State University)
Daniel Shestakov (Bank of Russia)

Abstract: This research addresses the concept of state failure. In this paper different types of state failure are identified. Since a state is an organization, it has its own shareholders, stakeholders, and 3d parties. Therefore, state failure might be examined in three different contexts. The first defines failure from the point of view of the organization itself and its shareholders, i.e. the elites. The second treats failure from the viewpoint of a state’s stakeholders, represented by the population. The third approach considers failure as perceived by third parties, i.e. experts and international organizations. A state may be deemed successful according to one view and failed according to another. Hence the failure can be complete (where all of the views assert the failure), quasi (where the state is considered failed only by one or two of the measures), and alleged (failure identified only by experts). The result is that some states identified as failed by renown indices are in fact only allegedly failed, while remaining legitimate in the eyes of their citizens. The point of view of the population is the principal focus of this research. Social contract is understood as a basis for the state’s sustainability in the eyes of its population. The “exit and voice” concept is used. It is based on the idea that in states failing to fulfill the social contract, unsatisfied citizens are trying to exit it by migration, by moving its activities to the shadow economy and/or openly express their discontent. Using the exit-voice approach we create an index of state failure for years 1999-2005. Pooled OLS and Probit estimates are used to test the hypotheses of the institutional roots of state failure from the citizens’ perspective. The results are the following: limited access institutions and diverse population increase the probability of state failure. Probit-model shows the significance of resource dependency, and OLS highlights that state experience helps to avoid failure.