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Globalization and outcomes of institutional competition

Libman, Alexander (2005): Globalization and outcomes of institutional competition.

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Institutional competition, or competition of countries for mobile individuals and organizations by changing the system of formal institutions and adopting it to the demands of mobile groups and individuals, is considered to be an important element of globalization. A popular view is, that institutional competition improves the quality of institutions, because it acts as discovery process and additional control mechanism for the government. The outcome of institutional competition is always better institutions. Hidden assumptions underlying this thesis are first, that the individuals and organizations prefer transaction-cost-efficient institutions and second, that the government is interested in attracting mobile individuals and organizations. These assumptions, however, are correct only under specific institutional environment. There are different reasons for individuals to support low-quality institutions (including the redistribution effects, path dependence and mental models and deficit of trust). Governments may also prefer low immigration. Do these reasons exist also under environment of institutional competition? The main question is also, whether the new logic created by institutional competition changes old behavior patterns and establishes better institutions, or outcomes of institutional competition are shaped by original institutional environment and may be inefficient? The paper supports the second answer analyzing experience of post-Soviet states.

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