Local and regional variation in institutional quality

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Economic institutions

There can be large differences in the quality of local and regional institutions. An analysis using data from the most recent (2010) LiTS found that only about 20 per cent of the variation in the performance of local governments as perceived by households across the transition region was due to variation across countries; 80 per cent was due to intra-country variation. Similarly, only 31 per cent of the local variation in perceived corruption in administrative systems could be explained by differences across countries. At the regional level, the variation attributable to country-level effects totalled 57 per cent (for local government performance) and 47 per cent (for corruption).¹

Even greater diversity across regional business environments is suggested by the World Bank 2012 Doing Business report undertaken in 30 regions of Russia. This subnational survey covered the four aspects where region-specific regulations or practices matter most: starting a business, dealing with construction permits, registering property and securing an electricity supply.

The survey revealed a surprising amount of cross-regional diversity in the Russian business environment. With the possible exception of Ulyanovsk, no area scored well on all four aspects, and virtually all areas featured among the top performers for one aspect while ranking poorly in others. For example, while it may be relatively easy to conduct business in Mordovia, North Ossetia and Rostov, it appears to be difficult to start a business there.² A 2012 BEEPS survey conducted by the EBRD and the World Bank in 37 regions of Russia with statistically representative regional samples painted a similar picture.³

Regional and local differences in business environment quality and related economic institutions could be due to similar factors influencing the country-level differences analysed in Tables 3.1 and 3.2. For example, local or regional histories may matter (with historical national borders often not coinciding with current national borders, as shown in Box 3.1), and ethnic composition, natural resource dependence and degrees of international integration may also vary within a country. As at the national level, some of these factors can be influenced by policies, others less so. Importantly, local political institutions may be easier to reform than those at national level, particularly in less democratic countries. This point is considered further in the concluding section of the chapter.

1. The analysis was based on answers to questions 6.20a ("Please rate the overall performance of local government") and 6.04 ("Did you or any member of your household make an unofficial payment or gift when using these [administrative] services over the past 12 months?"). The contributions cited are based on the decomposition of the R2 of a regression of these variables – average responses for all primary sampling units (PSUs; about 1,700 observations) and administrative regions (about 200 observations) – on a number of local level explanatory variables and a full set of country dummy variables. [back]
2. See World Bank (2012a). [back]
3. See EBRD (2012a). [back]

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