Exitability and Institutional Quality

Abstract

We study the empirical relationship between the quality of economic institutions and ease of territorial exit in a cross-section of countries by introducing several new variables that measure how difficult or easy it is for citizens to exit. Theoretically, the easier it is to emigrate from a country’s jurisdiction — the higher the country’s exitability — the more difficult it will be to extract rents from citizens and institutional quality should be better. We introduce measures of exitability based on the relationship between the length of borders relative to country size. Greater access to exit options makes a country more exitable. Thus, greater exitability facilitates “voting with one’s feet” that could generate Tiebout-like competition between self-interested rulers who wish to maximize their rents through an optimal combination of extraction and the size of the economic base. We demonstrate a strong relationship between exitability and institutional quality in multiple specifications and contribute to the emerging literature on the origins and determinants of economic institutions.