More is Better! What Can Firm-Specific Estimates of the Impact of Institutional Quality on Performance Tell Us?

26 Pages Posted: 18 Jan 2014 Last revised: 16 Apr 2023

See all articles by Sumon K. Bhaumik

Sumon K. Bhaumik

Aston University - Aston Business School; Institute for the Study of Labor (IZA); University of Michigan at Ann Arbor - Stephen M. Ross School of Business, William Davidson Institute

Ralitza D. Dimova

Brunel University London - Economics and Finance; IZA Institute of Labor Economics

Subal C. Kumbhakar

State University of New York (SUNY) at Binghamton - Department of Economics

Kai Sun

Aston University - Aston Business School

Abstract

We introduce a novel approach to modeling the impact of institutional quality on firm performance. Our methodology enables us to estimate the marginal effect of institutional quality on TFP, factor inputs and output of each firm, which gives us within-country distributions of these effects and hence a better picture of the winners and losers associated with a particular level of institutional quality. We are also able to model marginal impact of institutional quality on both TFP and the efficiency of use of factor inputs, and hence on output. This is a departure from stylized approaches that focus on the impact on TFP alone, and our approach therefore informs policy discussions about the impact of institutional quality (and their change) on shares of factor inputs in the output. We use cross-country firm-level data for the textiles and garments sector to demonstrate the advantages of this modeling approach in analyzing the impact of institutional quality.

Keywords: marginal effect, firm performance, institutional quality, textiles industry

JEL Classification: C14, D24, K31, O43

Suggested Citation

Bhaumik, Sumon K. and Bhaumik, Sumon K. and Dimova, Ralitza D. and Kumbhakar, Subal C. and Sun, Kai, More is Better! What Can Firm-Specific Estimates of the Impact of Institutional Quality on Performance Tell Us?. IZA Discussion Paper No. 7886, Available at SSRN: https://ssrn.com/abstract=2381138 or http://dx.doi.org/10.2139/ssrn.2381138

Sumon K. Bhaumik (Contact Author)

Aston University - Aston Business School ( email )

Aston Triangle
Birmingham, West Midlands B47ET
United Kingdom

Institute for the Study of Labor (IZA) ( email )

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

University of Michigan at Ann Arbor - Stephen M. Ross School of Business, William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

Ralitza D. Dimova

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Subal C. Kumbhakar

State University of New York (SUNY) at Binghamton - Department of Economics ( email )

Binghamton, NY 13902-6000
United States

Kai Sun

Aston University - Aston Business School

Aston Triangle
Birmingham, B47ET
United Kingdom

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