Institutional equilibrium in EU economies in 2008 and 2018: SEM-PLS models

Mateusz Borkowski

doi:10.2478/stattrans-2022-0019

Institutional equilibrium in EU economies in 2008 and 2018: SEM-PLS models

Mateusz Borkowski Doctoral School in the Social Sciences (economics and finance), University of Bialystok, Bialystok, Poland ORCID:https://orcid.org/0000-0003-0644-4764 Statistics in Transition new series, vol. 23, 2022, 2, pages: 107–127 Published online: 14 June 2022 DOI 10.2478/stattrans-2022-0019

749 Views 45 Downloads

ARTICLE

(English) PDF

ABSTRACT

The aim of the research is to identify the strength and direction of the development of the relationship between formal and informal institutions and to assess the institutional equilibrium of modern economies. The structural equations modelling based on partial least squares (SEM-PLS) is applied to achieve the purpose of the article. It is an econometric method that allows the measurement and analysis of the dependencies between latent variables (measures that cannot be directly observed). The study included 27 EU economies and the research period covered the years 2008 and 2018. The results of the study demonstrate that the quality of informal institutions strongly, positively determines the quality of formal institutions. The conducted analyses indicate that modern economies are diversified in terms of the quality of informal and formal institutions and, consequently, in institutional equilibrium. Considerable institutional disparities also translate into a large diversification in economic development. The article proposes a different meaning of institutional equilibrium, understood as the achieved state of institutional structure characterised by high quality informal institutions which interact with each other to improve the efficiency of formal institutions. The article presents a comprehensive model of the institutional structure and a unique method of measuring institutional equilibrium.

KEYWORDS

institutional equilibrium, SEM-PLS, economic growth and development

REFERENCES

Amable, B., (2016). Institutional complementarities in the dynamic comparative analysis of capitalism. Journal of Institutional Economics, Vol. 12, No. 1, pp. 79–103, doi: 10.1017/S1744137415000211.

Balcerzak, A., (2020). Quality of Institutions in the European Union countries. Application of TOPSIS Based on Entropy Measure for Objective Weighting. Acta Polytechnica Hungarica, Vol. 17, No. 1, pp. 101–122, doi: 10.12700/APH. 17.1.2020.1.6.

Ciborowski, R. W., Skrodzka, I., (2020). International technology transfer and innovative changes adjustment in EU. Empirical Economics, Vol. 59, No. 3, pp.1351–1371. doi: 10.1007/s00181-019-01683-8.

Fiedor, B., (2015). Instytucje formalne i nieformalne w kształtowaniu trwałego rozwoju [Formal and Informal Institutions in Shaping Sustainable Development]. Zeszyty Naukowe Uniwersytetu Szczecińskiego. Studia i Prace Wydziału Nauk Ekonomicznych i Zarządzania, Vol. 2, No. 40, pp. 83–107, doi: 10.18276/sip.2015.40/2-07.

Fiedor, B., (2019). Proces transformacji a nowa ekonomia instytucjonalna (NEI): Koszty transakcyjne i równowaga instytucjonalna [Process of transformation vs. New Institutional Economy (NIE): Transaction Costs and Institutional Equilibrium]. In Ekonomia i polityka. Wokół teorii Grzegorza W. Kołodko [Economics and Politics. Around the Theory of Grzegorz W. Kołodko], E. Mączyńska (eds.), Warszawa: PWN, pp. 164–182.

Fuentelsaz, L., González, C., Maicas, J. P., (2019). Formal institutions and opportunity entrepreneurship. The contingent role of informal institutions. BRQ Business Research Quarterly, Vol. 22, No. 1. pp. 5–24. doi: 10.1016/j.brq. 2018.06.002.

Gancarczyk, M., (2002). Instytucja a organizacja w nowej ekonomii instytucjonalnej [Institution and Organisation in New Institutional Economics], Gospodarka Narodowa. The Polish Journal of Economics, Vol. 176, No. 5-6, pp. 78–94, doi: 10.33119/gn/113844.

Godłów-Legiędź, J., (2010). Współczesna ekonomia: Ku nowemu paradygmatowi? [Contemporary economics: Towards a new paradigm?], Warszawa: C. H. Beck.

Gruszewska, E., (2011). Dezintegracja w zinstytucjonalizowanym świecie [Disintegration in an Institutionalized World]. Ekonomia i Prawo, Vol. 7, No. 1, pp. 49–65, doi: 10.12775/eip.2011.003.

Gruszewska, E., (2013). Instytucje a proces tworzenia kapitału w Polsce [Institutions vs. the process of capital formation in Poland]. Białystok: Wydawnictwo Uniwersytetu w Białymstoku.

Gruszewska, E., (2017). Instytucje formalne i nieformalne. Skutki antynomii [Formal and Informal Institutions. Results of Antinomy]. Prace Naukowe Uniwersytetu Ekonomicznego we Wrocławiu, No. 493, pp. 36–50, doi: 10.15611/ pn.2017.493.03.

Hair, J. F., Hult, G. T. M., Ringle, C., Sarstedt, M., (2014). A Primer on Partial Least Squares Structural Equation Modeling, Los Angeles, London, New Delhi, Singapore, Washington DC, Melbourne: SAGE Publications.

Hair, J. F., Ringle, C. M., & Sarstedt, M., (2011). PLS-SEM: Indeed a Silver Bullet. Journal of Marketing Theory and Practice, Vol. 19, No. 2, pp. 139–152, doi: 10.2753/mtp1069-6679190202.

Helmke, G., Levitsky, S., (2004). Informal Institutions and Comparative Politics: A Research Agenda. Perspectives on Politics, Vol. 2, No. 4, pp. 725–740, doi: 10.1017/S1537592704040472.

Hindriks, F., Guala, F., (2015). Institutions, rules, and equilibria: A unified theory*. Journal of Institutional Economics, Vol. 11, No. 3, pp. 459–480, doi: 10.1017/S1744137414000496.

Hodgson, G. M., (2006). What Are Institutions? Journal of Economic Issues, Vol. 40, No. 1, pp. 1–25, doi: 10.1080/00213624.2006.11506879.

Höpner, M., (2005). What connects industrial relations and corporate governance? Explaining institutional complementarity. Socio-Economic Review, Vol. 3, No. 2, pp. 331–358, doi: 10.1093/SER/mwi014.

Lohmöller, J.-B., (1989). Latent Variable Path Modeling with Partial Least Squares, Verlag, Berlin, Heidelberg: Springer.

Mahoney, J., Thelen, K., (2010). Explaining Institutional Change: Ambiguity, Agency, and Power, Cambridge: Cambridge University Press.

Miłaszewicz, D., Nermend, K., (2020). Application of Vector Measure Construction Methods to Estimate Quality of Institutions: Nations in Transition. European Research Studies Journal, Vol. XXIII, No. special 2, pp. 16–29. doi: /10.35808/ersj/1805.

Mohmand, S. K., (2015). Customary institutions and public authority: A literature review, Bern: Swiss Agency for Development and Cooperation.

Monecke, A., Leisch, F., (2012). semPLS: Structural Equation Modeling Using Partial Least Squares. Journal of Statistical Software, Vol. 48, No. 1, pp. 1–32. doi: 10.18637/jss.v048.i03

Nifo, A., Vecchione, G. (2015). Measuring Institutional Quality in Italy. Rivista Economica Del Mezzogiorno, No. 1-2, pp. 157–182.

North, D. C., (1992). Institutions, Ideology, and Economic Performance. Cato Journal, Vol. 11, No. 3, pp. 477–496.

North, D. C., (1994). Economic Performance Through Time. The American Economic Review, Vol. 84, No. 3, pp. 359–368.

Ostrom, E., (2008). Doing Institutional Analysis: Digging Deeper than Markets and Hierarchies, In Handbook of New Institutional Economics, C. Ménard, M. M. Shirley (eds.), Berlin, Heidelberg: Springer, pp. 819–848, doi: 10.1007/0-387-25092-1_31.

Platje, J., (2008). “Institutional capital” as a factor of sustainable development - the importance of an institutional equilibrium. Technological and Economic Development of Economy, Vol. 14, No. 2, pp. 144–150. doi: 10.3846/1392-8619.2008.14.144-150

Rademaker, M., Schuberth, F., (2021). Composite-Based Structural Equation Modeling, Retrieved April 13, 2021 from: https://m-e-rademaker.github.io/cSEM/

Rordik, D., (2007). One Economics, Many Recipes: Globalization, Institutions, and Economic Growth, Princeton: Princeton University Press.

Rogowski, J., (1990). Modele miękkie. Teoria i zastosowanie w badaniach ekonomicznych [Soft models. Theory and application in economic research], Białystok: Wydawnictwo Filii Uniwersytetu Warszawskiego w Białymstoku.

Seidler, V., (2011). The Role of Informal Institutions in Building the Institutional Framework of an African State: The Case of the Kanuri in Nigeria. SSRN Scholarly Paper ID 3050608, doi:10.2139/ssrn.3050608.

Skarbek, D., (2020). Qualitative research methods for institutional analysis. Journal of Institutional Economics, Vol. 16, No. 4, pp. 409–422, doi: 10.1017/ S174413741900078X.

Skrodzka, I., (2016). Knowledge-Based Economy in the European Union: Cross-Country Analysis. Statistics in Transition new series, Vol. 17, No. 2, pp. 281-294. doi: 10.21307/stattrans-2016-019.

Veblen, T. B., (2016). The Theory of the Leisure Class, Scotts Valley: CreateSpace Independent Publishing Platform.

Vitola, A., Šenfelde, M., (2015). The role of institutions in economic performance.

Verslas: Teorija ir Praktika, Vol. 16, No. 3, pp. 271–279, doi: 10.3846/ btp.2015.498.

Wilkin, J., (2011). Institutional Equilibrium: What Is it about and what Is its Role in the Economy? Prace Naukowe Uniwersytetu Ekonomicznego We Wrocławiu. Ekonomia, Vol. 15, No. 208, pp. 26–37.

Wilkin, J., Kargol-Wasiluk, A., Zalesko, M., (2019). Równowaga instytucjonalna - fundament równowagi gospodarczej [Institutional Equilibrium: the Foundation of Eco-nomic Equilibrium]. Ekonomista, No. 6, pp. 659–679.

Williamson, C. R., (2009). Informal institutions rule: Institutional arrangements and economic performance. Public Choice, Vol. 139, No. 3, pp. 371–387, doi: 10.1007/s11127-009-9399-x.

Wold, H., (1980). Soft modelling: Intermediate between traditional model building and data analysis. Banach Center Publications, Vol. 6, No. 1, pp. 333–346, doi: 10.4064/-6-1-333-346.