Local governance quality and law compliance: The case of Mozambican firms

Hanna Berkel, Christian Estmann and John Rand

World Development, 2022, vol. 157, issue C

Abstract: In sub-Saharan Africa, many micro and small enterprises do not (or at least only partially) comply with official rules and regulations. Given that low compliance rates impede economic growth and human development, it is essential to identify mechanisms that can help improve abidance with laws. This paper investigates how the quality of governance (defined as comprising three dimensions: transparency, legal security and infrastructure quality) is related to firm-level compliance with business laws and regulations in the case of Mozambique. We utilise firms’ subjective perceptions of governance quality and their self-reported law compliance over time to study the governance–compliance nexus, taking into account unobserved firm-level heterogeneity. Furthermore, we examine whether political legitimacy acts as a mediator or a moderator between governance and compliance. Our results suggest that perceived improvements in transparency positively affect firms’ compliance with existing legislation. Requests from provincial government officials for firms to comment on local regulations seem to be especially important for law abidance. We find that legitimacy is independently associated with compliance, but does not seem to mediate or moderate the quality of governance. Overall, our results suggest that, even in one of the least developed and non-democratic parts of the world, active participation in political processes is positively associated with law compliance.

Keywords: Governance; Transparency; Compliance; Firm behaviour; Mozambique (search for similar items in EconPapers)
JEL-codes: D22 D23 K22 O55 P16 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:wdevel:v:157:y:2022:i:c:s0305750x22001322

DOI: 10.1016/j.worlddev.2022.105942

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