This paper investigates the effect of a major judicial reform—the establishment of interprovincial circuit tribunals (ICTs)—on politically biased court outcomes. Using a unique data set of commercial civil cases involving listed firms in China and based on a difference-in-differences approach, we find that the ICTs effectively curb political favoritism in the judiciary, as evidenced by a significant decline in the win-rate disparity between politically connected and unconnected firms following the reform. The effects are more pronounced for firms connected to higher-ranking officials, those facing higher travel costs to appeal for retrial pre-reform, cases involving larger monetary stakes, and regions characterized by weaker legal environments. Moreover, the mechanism analysis suggests that the reform reshapes local courts’ incentives to yield to political interference through career concerns and the special petition mechanism. Finally, further analysis indicates that this judicial reform improves the quality of court decisions, enhances judicial accessibility, and mitigates local protectionism. Overall, the ICTs have significantly deterred political interference in court proceedings and contributed to a more impartial judicial environment in China.
This introduction presents the rationale for the special issue “Institutions in flux: The dynamics of formal and informal rules”. It argues that while institutions are central to economic, political and social outcomes, institutional analysis must also explain how rules and norms change, why reforms succeed or fail, and how formal and informal institutions interact. The seven papers in the issue study institutional change across different settings, methods and mechanisms, including reform sequencing, civil society, public-goods provision, censorship, globalization and uncertainty. Together, they show that institutional change is shaped by credibility, coalitions, enforcement, information, culture and power. The special issue therefore contributes to a dynamic understanding of institutions, emphasizing not only their consequences but also their origins, adaptation and unintended effects.
Ethnic fractionalization and its consequences in Africa have received a lot of attention in the literature, but little focus has been placed on segmentation in the labor market, despite ethnic frictions being a potentially important hindrance to efficient factor allocation. Using census extracts from 14 African countries and two indicators of grouping—a novel and an existing one—ethnic occupational grouping is shown to be a systematic phenomenon in African labor markets, and is significantly different from what random sorting would imply. It is fairly small in magnitude, however, and the occupational classification used seems to matter little for its scope. Ethnic occupational segregation is more important than gendered occupational segregation, the opposite of what is found in a census sample from the UK using the same broad occupational categories. Furthermore, grouping occurs more in urban areas than in rural ones, and education plays different roles in urban and rural settings. High value added sectors contribute comparatively more to grouping than low value-added sectors. Finally, when focusing on Mali, narrowing the geographical scope makes the structural component of segregation relatively more important, while broadening the scope makes its compositional component relatively more important.
Do export demand shocks affect firms’ investments in R&D? In this paper, I argue that corruption levels in firms’ countries of origin matter for answering that question. I develop a theoretical model, which predicts that if the overall impact of an export demand shock is positive, innovations of firms from non-corrupt states will increase more than those of firms from corrupt states. If the overall impact is negative, R&D investments of firms from non-corrupt states will decline less than the investments of firms from corrupt countries. The model predicts that it can also be possible for R&D investments of firms from corrupt countries to decline/stay the same, but the investments of the ones from non-corrupt states to go up, but not vice versa. To test these predictions empirically, I construct a measure of corruption using data from three non-governmental organizations and employ firm-level data covering firms from different countries. The empirical results suggest that, on average, manufacturing firms from non-corrupt countries invest around 7.8 times more into R&D than the ones from corrupt states. Moreover, an increase in the export market size is found to be positively associated with R&D investments of manufacturing firms originating from non-corrupt states. In most empirical specifications, I find a negative statistical association between the R&D investments of manufacturing firms from corrupt countries and the increase in the export market size.
We examine the effects of religious repression on religiosity and nationalism by studying Nazi violence against Polish Catholic clergy in occupied Poland. Using original local-level data and a spatial regression discontinuity design, we establish that religious repression was most severe in the annexed Warthegau region, resulting in the arrest or death of most local priests. We argue that targeting the clergy can have divergent effects on religious participation and attachments to identities the clergy represent. The removal of priests interrupts the supply of religious services, undercutting the behavioral norm of regular church attendance. At the same time, by elevating victims to the status of martyrs for their faith and nation, this form of repression may bolster religious nationalism among their followers. Consistent with the supply channel, church attendance and religious schooling were lower in repressed localities. In line with the martyrdom channel, these localities had more monuments to victimized priests and showed greater support for nationalist parties when WWII was politically salient. Our results suggest that foreign repression against religious leaders leaves lasting legacies for political and social behavior.
This study examines how political uncertainty affects high-skill labor demand among US public firms. Using close gubernatorial elections as an exogenous shock and job postings data, I find that firms increase skilled hiring, mainly through higher R&D investments. Firms shift labor demand to nearby states with stable policies, creating spillover effects. In counties outside uncertain states, higher exposure to treated firms leads to modest job gains for college-educated workers and a slight unemployment decline, with no wage impact. These findings highlight firms as key channels for transmitting political uncertainty across labor markets.
The modernization hypothesis and the question of sequencing institutional development remain important for economic development, the economics of transition, and interpreting economic history. This paper applies panel vector autoregression to test whether other institutional structures precede the adoption of democracy, making use of a recently developed method of measuring historical state capacity for a large number of countries. The evidence suggests that neither strong states nor market institutions are necessary for democratization, contradicting one of the main claims of modernization theory. Relatively little evidence is found in favor of the importance of sequencing overall. Improving the quality of state institutions tends to precede liberalized economic institutions.
This paper examines the impact of two massive and unexpected inflows of Ukrainian migrants on voting behavior in Poland. In particular, we examine the effects of a conflict-induced labor migration shock and a refugee shock resulting from Russia’s aggression against Ukraine in 2014 and 2022, respectively. Using an instrumental variable approach, we find that greater exposure to labor migrants reduces support for conservative parties in the short run and subsequently shifts voter preferences toward pro-redistribution parties. Exposure to labor migrants as well as to refugees leads to a decrease in far-right voting. This effect emerges only after the salience of Ukrainian migrants increases due to the escalation of Russia’s aggression and the rise of anti-Ukrainian rhetoric from the Polish far-right. The backlash from Polish voters against far-right rhetoric is ten times stronger in areas with stronger exposure to refugees than in areas with greater exposure to labor migrants. Our results are robust to the use of a number of instruments and several sensitivity checks.
This paper examines the relationship between geopolitical distance and foreign investments over time, countries, and sectors. The analysis uses comprehensive data on foreign direct investments covering greenfield projects, mergers and acquisitions, and stocks of affiliates, as well as data on four alternative measures of geopolitical distance between countries. Our gravity estimations suggest that, first, geopolitical distance has a negative effect on foreign investments and the magnitude has heightened in the post-pandemic period compared to a decade ago, in line with friendshoring forces being at play. Second, it is primarily the companies from advanced Western economies whose foreign investment decisions are increasingly shaped by friendshoring forces. Finally, the paper shows that friendshoring is not only confined to strategic industries, implying that it may not solely reflect national security or resilience considerations.
This paper constructs a new identification method to quantify bilateral geopolitical shocks—geopolitical turning points—i.e., abrupt, unforeseen state-to-state political turning points. Geopolitical shocks are captured by the second difference of the Political Relationship Index (Δ²PRI), a monthly narrative-based index constructed from Chinese government and media coverage. Unlike conventional global geopolitical risk indicators, Δ²PRI separates sudden departures from bilateral diplomatic paths so causal estimation is possible in a comparative cross-national context. Quantile instrumental variable local projections (IV-LP) are applied in the paper to estimate the dynamic and asymmetric geopolitical shock impact on world oil prices. It is estimated that US–China relational improvements lower oil prices by 0.2% in the short run and increase them by 0.3% in the medium run, with larger effects at the distribution boundaries of oil prices. Replication from Japan–China data establishes external validity. The paper adds a replicable analysis framework to explain how geopolitical shocks for dyads with heterogeneous institutional history and strategic rivalry spill over into global economic instability.
While adolescent mental health is crucial to human capital formation, less is known about whether mental-health risks generate externalities within educational social networks. This study utilizes large-scale survey data from Chinese middle schools and exploits institutional random assignment of students to classes to explore how peer environments shape students’ mental well-being, cognitive ability, and academic performance. We measure peer exposure using leave-one-out classroom prevalence of adverse home environments, which proxies peers’ latent mental-health risk. Our results demonstrate that greater exposure to peers facing elevated mental-health risk significantly impedes adolescents’ human capital development, including worsened mental well-being, as well as reduced cognitive ability and academic performance. These adverse effects are particularly pronounced among disadvantaged students and those with worse baseline well-being or academic performance, implying that adverse peer environments can amplify existing inequalities in human capital accumulation. Mechanism analysis reveals that deteriorated friendship quality and class environment, reduced study efforts and motivation, and perceived worsening teacher-student relationships are key mechanisms, whereas teachers’ self-reported instructional practices show limited adjustment. Overall, the findings suggest that school-based psychosocial supports may yield social returns beyond treated students by improving classroom emotional climate and reducing peer spillovers.
Using unique data from Croatian supermarkets, we show that nationalist music events shape everyday consumption choices. First, we establish a link between buying goods labeled as ‘Croatian Quality’ or ‘Authentic Croatian’ and voting for nationalist parties. By tracking individuals through loyalty card purchases, we show that attending a nationalist concert leads to an estimated 2.7 percentage-point increase in the share of grocery spending on these nationally branded goods, a 13% increase over the mean. There is no similar impact of attending non-nationalist concerts and the results are not driven by supply or price shifts at concert locations.
We use a historical episode of EU integration to analyse how the integration of Central and Eastern European countries (CEECs) in the EU has contributed to cross-border technology transfers. We modify the typical FDI spillover framework to analyse cross-border spillovers in regions close to the border. We then use a multi-country firm-level panel to analyse the impact of border regimes on the existence and size of cross-border spillovers, exploiting variation in the pace and extent of European integration of seven CEECs between 2000 and 2010. We find EU membership to be a necessary condition for cross-border productivity spillovers to emerge via backward linkages. Schengen area participation further magnifies these spillovers. Our results bear testimony to the successful EU integration of CEECs and warn about potential productivity costs of reinstating border restrictions.
We investigate the willingness of politicians in the German Bundestag to interact with voters, drawing on data capturing direct interchanges between citizens and their elected representatives to measure their responsiveness. In a setting without term limits, we examine whether electoral incentives influence politicians’ engagement with citizens. Our theoretical model predicts, and empirical results confirm, that politicians who are not seeking reelection become less responsive to voters, especially as election day approaches. This decline is attributed to a behavioral response resulting from a decrease in intra-party standing, rather than to a change in motivation or personal ideological convictions. Politicians retiring due to age or health reasons maintain consistent levels of interaction with voters, in contrast to those leaving due to pressure within their party or due to career changes, who exhibit decreased engagement with voters. Our findings offer novel insights into the role of incentives and constraints for political behavior in countries without mandatory term limits.
This study examines the impact of input tariff liberalization on gender disparities using China’s WTO accession as a natural experiment. We first offer a theoretical framework to illustrate the mechanisms. Using micro-level data from China, we show that input tariff liberalization increases incomes for manufacturing workers but widens the gender income gap. This widening is not due to longer working hours by men but by rising gender wage inequality. We also find that input tariff reductions worsen manufacturing workers’ health, and this adverse effect is more pronounced for women. These worsening gender disparities, however, are concentrated primarily among unskilled workers.
During Brazil's Age of Mass Migration (1880s-1930s), the state sponsored immigrant settlements in Sao Paulo. Using a new dataset that combines historical and modern administrative records, this paper explores the institutional impact of these settlements. Municipalities closer to them now enjoy better public goods provision and more well-defined property rights, as reflected in structured contractual arrangements, fewer land invasions, and increased investments in highstakes agricultural practices. Intermediate data show that settlement municipalities recorded higher notarial activity, more frequent legal transactions, and greater land tax revenues in the years following settlement. These changes supported improvements in local governance, legal certainty, and public investment. Overall, the findings highlight how state-led settlement shaped regional economic and institutional development, showing that the implementation of immigration policy had lasting effects on local growth trajectories.
Low barriers to trade and access to international capital markets have long been argued to improve economic conditions in a country. However, there is less consensus on the impact of economic globalization on the distribution of those gains across society. There are several possible explanations for the conflicting findings in the existing literature, perhaps most notably endogeneity issues that plague the cross-country studies. To alleviate this, we utilize matching methods. Instead of using Gini coefficients, as much of the previous literature, we examine large increases in economic globalization’s impact on 5-year income growth in each quintile of the income distribution as well as top 1 and 5 percent. We find no evidence that income growth for the middle classes in OECD countries is hurt by economic globalization; if anything, some results indicate statistically positive effects. Most estimates, however, are positive but statistically and economically insignificant.
Economists frequently assert that politicians derive financial returns from a political career, but these returns can be obscured by the varying duration of political careers. In this study, I estimate the financial returns associated with successive mandates in the Lower House, capitalizing on the repetitive treatment assignment through close elections in the Netherlands from 1848–1917. Employing a dynamic regression discontinuity framework, I establish that the financial benefits accruing to politicians are due to the first two periods of political tenure, but no substantial returns emerge during the more advanced career stages. These findings emphasize that politicians elected for a first and second term exhibit significantly higher end-of-life wealth than their losing counterparts, equivalent to several years’ salaries. I also explore various potential mechanisms, providing evidence in favor of career-based explanations and against in-office returns.
