Institutions and Regulations. Empirical Evidence Across and Within Countries

Abstract: Regulatory outcomes of firms vary within and across countries. We identify this variation with Enterprise Survey data using sets of indicators for regulation of entry and trade across borders. First, we do variance decomposition and simultaneous analysis of variances to uncover how much of firm level variation institutions and firm characteristics do explain. Second, guided by existing research on institutions and political economy, we apply random coefficient estimation to isolate the contextual effects of institutions with sectors, regions and firm size for the same set of dependent variables. Third, we test how between and within country heterogeneity of regulatory outcomes interfere with performance of firms and discuss how well heterogeneity in regulatory outcomes predict corruption, governance and economic development. Our results show that formal and informal institutions do not explain the same set of regulations, and that there are significant differences in firm size, corruption and economic development for regulation of entry but not for regulation of trade across borders. We use instrumental variable estimation, sample correction, split samples and alternative datasets to address concerns over endogeneity and selection bias.