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Formal and informal institutions in Bosnia and Herzegovina - determinants and relationships -

Formal and informal institutions in Bosnia and Herzegovina - determinants and relationships -. Dr Adnan Efendic. Marie Curie IAPP Conference Zagreb, 01 September 2015. Introduction. A little bit about theory Some initial inputs about institutional environment in BiH

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Formal and informal institutions in Bosnia and Herzegovina - determinants and relationships -

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  1. Formal and informal institutions in Bosnia and Herzegovina- determinants and relationships - Dr Adnan Efendic Marie Curie IAPP Conference Zagreb, 01 September 2015

  2. Introduction • A little bit about theory • Some initial inputs about institutional environment in BiH • Empirical research on the link between formal and informal institutions • Remaining challenges for empirical research • Implications

  3. THEORY • Institutions - defined as FORMAL and INFORMAL rules of the game (North, 1990) • A good institutional arrangement is one that provides effective interaction betweena set of formal and informal institutions (De Soto, 2000) • Informal institutions has been relatively neglected dimension, partly due to data limitations

  4. THEORY • Formal and informal rules of the game - the meaning of “and” not very clear • The whole range of potential links, from unrelated to mutually endogenous, related either as complements or substitutes. • Possibilities: • Complements (desirable) • Substitutes (non-efficient interaction) • Gaps (transition open up the gap) • Informal institutions explain the formal once

  5. EMPIRICAL INVESTIGATION • Quantitative investigation based on survey data and probability modelling • Determinants which affect confidence in formal institutions and reliance on informal institutions in the focus • The link between formal and informal institutions particularly investigated

  6. FORMAL INSTITUTIONS IN BiH • Complex institutional structure, which was established through the DPA in 1995 • 14 different government levels and types • Overlapping and indeterminate jurisdictions between the levels of government • A top-down approach in creating institutional set-up in the country • Experience: not widely recognized or viewed as credible,lack legitimacy, difficult to enforce and more reliance on informal institutions is likely

  7. FORMAL INSTITUTIONS IN BiH

  8. FORMAL INSTITUTIONS (HFI - EF)

  9. INFORMAL INSTITUTIONS IN BiH • “If you want to suceed, you should have your own network??” • Why?: different reasons, but primarily: • To deal with (formal) institutional inefficiency • Post-conflict nature – formal institutions were overburdened if not absent so that people often had to rely on informal institutions to cope.

  10. SURVEY DATA • Survey data from 2008, UNDPBiH (Early Warning System) and 2012 (RRPP project – 1 survey) • Sample: representative of the different entities, regions, municipalities, ethnic groups, genders and urban/rural areas • Pooled data from 3 surveys 2008 – (different intercepts); 7,617 observations • Construct varaibles which code respondents’ perceptions on “institutional questions”

  11. DESCRIPTIVE STATISTICS

  12. VARIABLES BASED ON THEORY • “Institutional variables” that control for: • Formal institutions– confidence – property rigthts, contracts • Informal institutions– reliance – informal rules and networks • Direct costs of institutions (taxes, fees, admin costs, …) • Indirect costs of institutions (estimated costs – time, lack of enforcements, lack of efficiency,…) • Change in institutions– national/entity over the last 5 years • Istitutional structures – entities FBiH and RS • Ethnic status– minority vv majority • Residence – urban vv rural area • Gender – male vv female • Timing - surveys

  13. Link FORMAL-INFORMAL institutions • Institutional environment – formal and informal institutions - two (separate?) parts of one story • Theory – the linkis very “complex” - complements/substitutes/gap • Possibilites in empirical context: • “Common” observed variables influence the both types of institutions in BiH • Institutions “specific” influences • Complexity hardly “(un)observed” in the model

  14. SUPM modelling - features • SUPM - allows for a more complex(seemingly unrelated) pattern of joint determinations than simple simultaneity • Formal and informal institutions are related as joint outcomes of a wider system of influences • The relationship (FOR-INF) is modelled: • implicitly through the unobserved correlations inthe error terms, • explicitly by controlling for commonobservable variables in the system, • explicitly by controlling for equation specific variables in the system.

  15. P> P> The Likelihood-ratio test of

  16. P>

  17. CONCLUSION on the link • A mutually endogenous relationship between confidence in formal institutions and reliance on informal institutions • The success or failure of formal institutions ismirrored by the decreasing or increasing role of informal institutions • Hence, the result supports substituting relationship between formal and informal institutions

  18. SPECIFIC FINDING - determinants • Indirect costs matters the most – the highest marginal effect in the model – higher indirect costs associated with lower confidence in F.INST and more reliance on INF.INST • Institutional structure matters – FBiH entitiy respondents are less confident in formal and use informalinstitutions more than those from RS. • Ethnicity matters - Minority - have lower confidence in F.INST and more reliance on INF.INST than majority

  19. SPECIFIC FINDING - determinants • Lack of improvements in inst. – lower confidence in F.INST and more reliance on INF.INST (no strong evidence for INF.) • Higher direct costs – higher expectations from F.INST – less confident • Urban vv Rural - more reliance on INF.INST • Male vv Female – more reliance on INF.INST

  20. ROBUSTNESS PROCEDURES • Logit, probit, multinomial Logit • Full sample with “Don’t knows” • Different proxies for informal institutions (i.e. Informal rules or Informal networks) • Inclussion or exclussion of some ommited variables – model diagnostics • New survevy data from 2012 confirms the main finding - substitution

  21. INVESTIGATE FURTHER • Ommited infuences – no possiblity to control • Our analysis cannot identify fully the underlying causal relationships between formal and informal instititons • Dynamic panel context would be an advantage • Comparison of the results with other countries – extend the research? • Different types of formal/informal institutions • ...

  22. IMPLICATIONS • Puts into question assumptions either that formal and informal institutions are unrelated or that informalinstitutions are exogenous with respect to formal institutions • The quantitative effects of indirect costs of institutions are substantially larger than the effects of direct costs • Informal institutions are more persistent than formal ones – changes in formal institutions do not influence the degreeof reliance on informal institutions

  23. THANK YOU!

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