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Referee Report on Regulation of exit:

Political Economy of Passport Costs


By Timur Natkhov and Leonid Polishchuk

Presented in the 18th Annual Conference of The International Society for New Institutional
Economics (ISNIE) held at Durham, NC, USA, 2014.

Darcio Genicolo Martins

Institutional Environment Prof. Paulo Furquim 11/26/2015

Referee Report on Regulation of Exit.

Guide
1. Brief Summary

2. General Comments

Motivation

Regulation of Exit Costs of obtaining a passport

Motivation

Fact: According to the data presented by the authors, costs of


obtaining a passport can vary from 1% of the GDP per capita to
over 100%.

Why does that happen?

Main questions
What are the consequences of the regulation of exit?
Costs of obtaining a passport
Emigration issues

Who gets the rents from the regulation?


Consumers? Industry? Politicians?

Main argument
It is expected that (As in Djankov et. al, 2002) Costs of
obtaining a passport depend on regulatory quality and
government effectiveness.

Less efficient government + worse quality of regulation


costs of obtaining a passport would be higher. (Rent
Extraction: Public Choice)
Monotonic Relationship

Main argument
Argument of the paper: there is an association between Level
of Democracy and the Regulation of Exit.

But the authors found a Non-linear (quadratic) association

Sample: 127 countries, World Bank

Costs of obtaining a passport = only the fee (not time, neither


number of procedures).

Main argument

Main Argument
Why?
LD = Level of democracy (0 = Strongest; 1 = Weakest)
From 0 to LD* (max cost of obtaining a passport): traditional
explanation
Bureaucrats, politics:
Strong democracies no room for Rent Extraction
LD increases Extraction of rents increases
Then, costs of passport increases.

Main Argument
Why?
LD = Level of democracy (0 = Strongest; 1 = Weakest)
From LD* to 1:
Very weak democracy:
Organized Business groups Lobbies to decrease exit
barriers Costs of passport decrease Emigration
increases
Calibrate High-skilled vs. Low-skilled labor force
press the price factors down
Control political risks unions, poverty

Main Argument

Therefore, the authors think the costs of obtaining a passport not


only as a way of Regulation of international travel, but also (and
mainly) as a Regulation of Emigration flow.

General comments
Interesting approach

Status: Very initial phase

They do not test the main testable proposition: relation between


Regulation of Exit and Emigration.
The authors have found a non-linear relationship between
Costs of obtaining a passport and Level of democracy.
They create a model to explain this relationship
BUT, THEY DO NOT USE ANY VARIABLE CONCERNING
EMIGRATION.

General comments
They use only costs of passport (fees).
What about other costs (time, procedures etc.)? Could it
give a different result?
They argued that, usually, there is a positive correlation
among them. Is it true?
They do not make clear the threshold (poor vs. Rich countries).
The model the authors present lacks of clarity and proofs.
Some results seem reasonable but there is not much
detail about it.

Recommendation
Promising idea. Good potential.

However, it needs relevant improvements in order to


be ready to be published.

www.insper.edu.br