Transcript МОНИТОРИНГ Административных барьеров р

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Institutional determinants
of deregulation
Evgeny Yakovlev
and
Ekaterina Zhuravskaya
Main question


What determines whether deregulation reform started
by a central government in a large federation would
yield results at the local level?
We use:
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
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Russia’s deregulation reform - “a natural experiment”
unique panel data set on regulatory burden on firms from
CEFIR’s “Monitoring of administrative barriers to small
business development”
Analyze regional-level factors that explain variation in:
Changes in regulatory burden induced by reform
2. The enforcement of deregulation laws
1.
Reform

In 2001-2003, Russia undergone a drastic
deregulation reform

It passed laws that simplified procedures and
reduced administrative costs of


Registration, inspections, and licensing to business
The new laws established clear measurable
benchmarks
One “window” and no more than a week for registration
 No more than one inspection in two years by each agency
(e.g., fire, sanitary, certification inspections)
 No less than 5 years of license validity and reduction the
number of activities which require licenses

CEFIR’s Monitoring project 
Measures of regulations

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Repeated surveys of 2,000 small businesses in 20
regions of Russia (panel data)
Violations of enforcement of benchmarks in
deregulation laws
 Dummies indicating: too short license validity; an
illegitimate license; more than one inspection of any
agency in half a year; more than one window for
registration; more than one week to register
Regulatory burden
 number of illegitimate licenses; term of license validity;
number of inspections; % time spent on inspections,
number of agencies for registration
Timeline of Reform and the periods
covered by Monitoring data
Law on Registration,
2nd reduction
(June 2004)
Law on Licenses
(February 2002)
Law on Registration,
1st reduction
(July 2002)
Law on Inspections
(August 2001)
2001 I 2001 II 2002 I 2002 II 2003 I 2003 II 2004 I 2004 II
Data from
Survey
Rounds:
1st
2nd
3rd
4th
time
5th
• 5 rounds of Monitoring have taken place in 2001-2005
• Laws took effect at different points in time
Enforcement of new reform benchmarks
Darker bars in each
row indicate the
period before
reforms
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
1
2
3
time for registration > week
windows for registration >1
planned inspectors visits >1
length of license validity <5
4
5
Reform induced improvement in regulatory burden: Monitoring showed
immediate positive effect of the enactment of each law on measures of the
regulatory burden
 For most of the measurable outcomes, however, regulatory burden never
reached the level of benchmarks set by deregulation laws

Vast regional variation in the levels of
regulatory burden and in law
enforcement
7
Total number of inspections
6
5
4
3
2
1
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Round 1
Round 2
Round 3
Round 4
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Round 5
Main question: What accounts for differential in
reform progress across 20 (monitoring) regions
We relate reform progress to different regional
institutional characteristics
Potential institutional determinants
(initial, pre-reform values)
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Government transparency
Fiscal incentives (share of own revenues in
regional budget)
Lobbying by large business
Lobbying by small business
Media freedom
Resource abundance
Political variables (voter turnout, popularty of
local leaders)
1st exercise: Methodology


Difference-in-differences estimator
Regress each measure of regulatory burden and
of enforcement of a particular deregulation law on



interaction of “after reform” dummy with institutions
(potential determinants of deregulation) – the main
variable of interest
region and time fixed effects
Important control: initial level of regulation interacted
with “after reform” dummy
Rrt = INSTr*AFTERt + Rr0*AFTERt + Xrt +
+ t+ r +  rt


For all regulations – regional level panel
For inspections and licenses – firm level panel
Effect of institutions on selected measures
of regulation level, regional level panel
Transparency * AFTER
Industrial concentration * AFTER
Share of transfers * AFTER
Initial level of dep. variable * AFTER
Region and round fixed effects and time
variant controls
Observations
R-squared
Number of clusters




Number of agencies needed
for registration
-0.032
[1.79]*
-0.008
[0.02]
0.713
[2.26]**
-0.856
-0.63
-0.678
[2.39]** [2.19]** [2.60]**
Yes
84
0.56
20
Yes
84
0.54
20
Yes
84
0.56
20
Dummy - More than one
Number of permits &
inspection of SES per half of
licenses
-0.003
-0.007
[3.04]***
[1.73]*
-0.078
-0.207
[1.73]*
[2.17]**
0.109
0.28
[1.92]*
[2.28]**
-0.468
-0.462
-0.519
-0.555
-0.577
-0.683
[5.47]*** [5.16]*** [5.00]*** [2.82]** [3.04]*** [3.80]***
Yes
99
0.4
20
Yes
99
0.39
20
Yes
99
0.39
20
Yes
99
0.6
20
Yes
99
0.6
20
Yes
99
0.6
20
Government transparency; fiscal incentives; lobbying by large businesses have
beneficial effect on enforcement of deregulation
Resource abundance has some adverse effect on license validity
Small business prevalence some beneficial effect on license validity
Medial freedom and political variables do not have a robust effect
 Firm-level results are similar, but there are fewer significant results (possibly,
because of a measurement error)
2nd exercise: Methodology
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Different institutions affect progress in different regulatory areas
Which intuitions have the robust effect on law enforcement and
deregulation on average in all areas of regulation?
Construct measures of regulatory burden comparable across types
of regulations for each region and round:
 Rates of violations of benchmarks in each law
 Z-scores of regulations in each regulatory measure
Difference-in-differences-in-differences (DDD) estimator
Panel with fixed effects for each regulation in each region
 Timing of “after reform” differs across regulations (thus, this is
DD already)
 Main variable of interest – interaction of “after reform” with
institutions
V irt = INST r* AFT ERit + V ir0* AFT ERit + AFT ERit
+ X rt + t + ir + irt
Effect of institutions on the overall level
of regulation and violations of laws
Regulation level
Transparency * AFTER
-0.034
[1.78]*
Industrial concentration * AFTER
Share of transfers * AFTER
AFTER
Initial level of dep. variable * AFTER
Region*regulation fixed effects, round
dummies and regional time variant
controls
Observations
Number of regulations*regions
R-squared
# of clusters
-1.41
[2.94]***
1.392
[2.27]**
-0.392
-0.387
-0.394
[3.35]*** [3.68]*** [3.44]***
-0.686
-0.697
-0.731
[11.39]*** [10.82]*** [11.27]***
Violations of the law
-0.004
[2.16]**
-0.212
[2.82]**
0.243
[2.71]**
-0.079
-0.078
-0.079
[4.82]*** [4.71]*** [4.81]***
-0.799
-0.804
-0.796
[6.71]*** [6.38]*** [6.71]***
Yes
Yes
Yes
Yes
Yes
Yes
480
100
0.51
20
480
100
0.51
20
480
100
0.51
20
465
100
0.37
20
465
100
0.37
20
465
100
0.37
20
Government transparency; fiscal incentives; lobbying by large businesses
have strong robust effect on all regulations and law enforcement in general
Does deregulation matter?
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A common problem with figuring out the effect
of regulatory burden on small business
development is endogeneity of the level of
regulatory burden on firms
State officials regulate when there is something
to regulate (if business grows – bureaucrats
prey on it)
We can use our analysis of determinants of
regulations as IV

Use cross-term AFTER*INST as instruments for
regulations
Deregulation caused SME growth
Dependent variable - Number of small businesses
OLS
IV
OLS
IV
OLS
Dummy - more than 7 days on
0.024
-0.5679
registration
[0.39]
[1.77]*
Dummy - More than one inspection of
-0.6193
-2.5098
SES per half of year
[2.24]**
[2.33]**
Term of validity of a license
0.0748
[0.81]
Dummy: less than 5-year-term of
license validity
Region and round fixed effects, time
variant controls
Yes
Yes
Yes
Yes
Yes
Constant
-3.3031
1.7483
0.8
-0.2279
0.4976
[0.34]
[0.13]
[0.28]
[0.08]
[0.17]
Observations
84
84
99
99
99
R-squared
0.04
0.13
0.1
F-stat for first stage
2
21.47
IV
OLS
IV
-0.2597
[1.71]*
-0.361
[1.82]*
Yes
0.7024
[0.24]
99
0.12
Yes
0.5329
[0.19]
99
0.12
43.63
0.4771
[3.96]***
Yes
-2.9391
[0.95]
99
15.34
Panel OLS and IV regressions of small business on regulatory environment
Conclusions

We find that there are three institutional factors that have
significant and robust positive effect on reform progress in the
regions:
1.
2.
3.

Thus, our empirical findings confirm the following results of
theoretical literature on institutional change:
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government transparency in a region
the extent to which regional authorities are under influence of powerful
industrial groups representing large businesses
the extent to which regional budgets are comprised of own revenues
rather than transfers from the federal center
The importance of federalism for institutions (fiscal incentives of local
governments matter)
The need for creating demand for institutions (coming from large
industrial lobbies)
Importance of accountability (since government transparency matter)
We establish causal effect of deregulation on SME growth