SOCIETÀ ITALIANA DI DIRITTO ED ECONOMIA
Mitja Kovac (University of Ljubljana School of Economics and Business)
Chiarra Foccaci (HEC Liège)
Rok Spruk (School of Economics and Business University of Ljubljana)
Abstract
We examine the contribution made by institutional integration to institutional quality. To this end, the 2007 political crisis in Ukraine is considered along with the effects of remaining outside the European Union for 28 Ukrainian provinces between 1996 and 2020. Novel subnational estimates of institutional quality for Ukraine and Central and Eastern European (CEE) countries are constructed based on the latent residual component extraction of institutional quality from existing governance indicators by making use of Bayesian posterior analysis under a non-informative objective prior function. By comparing the residualised institutional quality trajectories of the Ukrainian provinces with their CEE peers admitted to the European Union in 2004 and later, we assess the institutional quality cost of being under the Kremlin’s political influence and interference. Based on a large-scale synthetic control analysis, we find evidence of large-scale negative institutional quality effects of staying outside the European Union such as heightened political instability and the rampant deterioration of the rule of law and control over corruption. The statistical significance of the estimated effects is evaluated across a comprehensive placebo simulation containing over 34 billion placebo averages for each institutional quality outcome.