Johanson, J., & Wiedersheim-Paul, F. 1975. Hay, C., & Wincott, D. 1998. We primarily use MNE, but we use MNC when it is included in a direct quote or in the title of a particular paper. Performance persistence and the impact of business group affiliation. Journal of International Business Studies, 47(7): 778806. Informal institutions, on the other hand, are the actual unwritten rules and norms of behavior (North, 1990, 2005), which likely arise as a result of and in conjunction with the cultural framework, but also of formal structures in place in a given location. Journal of International Business Studies, 51(4): 467497. Van Essen, M., Heugens, P. P., Otten, J., & van Oosterhout, J. H. 2012. Similarly, in including formal and informal institutions in the regulatory pillar, the distinction between them is not highlighted. 2016. Katzenstein, M. F. 1996. It focuses on a logic of instrumentality (instrumental rationality), where actors behave instrumentally vis--vis their official mandates or goals. By this we mean that either theoretically the two terms are used interchangeably, which measures of culture are used to capture informal institutions, or both (see footnote for specific examples).4 Furthermore, the main measures of culture used in this literature (e.g., Hofstede, 1980, 2001; House, 1998; Schwartz, 1992) are based on values and do not capture shared rules, such as norms, customs, and traditions. Batjargal, B. Baron, D. P. 1995. 2013. (Eds.). Of the SI papers, the one that aligns most closely with the HI perspective is entitled Historical institutions and contemporary foreign direct investment: Evidence from China, by Zhang. Lewellyn and Bao (2014: 1167) state they study the informal institutional effects of national culture. This paper proposes that MNEs tend to hire employees with government experience and pay them a salary premium as a means of acquiring knowledge about the host markets formal and informal institutions. Examining these relationships could lead to rich theoretical advances and perhaps even breakthroughs in our field. They are the humanly devised constraints that structure political, economic, and social interaction (North, 1991: 97). Chacar, A. S., Newburry, W., & Vissa, B. Carraher, S., & Shi, W. S. 2017. This strand has sought to bridge especially aspects from RCI and from OI by drawing concepts from both. Thousand Oaks, CA: Sage. Journal of International Management, 25(2): 1650. Lehman, D. R., Chiu, C. Y., & Schaller, M. 2004. New York: Columbia University Press. Historical institutionalism. For instance, instead of seeing them as opposing underlying assumptions, theory could be developed for how the twin forces of profit-maximization and legitimacy-maximization create conflicting forces that lead to cognitive compromise. We propose that IB can be an ideal field for developing theory on informal institutions that can deeply influence not just our field, but other fields as well. Institutions, institutional change and economic performance. Chacar, A. S., & Hesterly, W. 2008. Scott, W. R. 1995. Strategic Management Journal, 18(9): 697713. The born global firm: A challenge to traditional internationalization theory. What are institutions? ), Historical institutionalism in comparative politics: State, society, and economy: 369404. Indianapolis: Bobbs-Merrill Company. Cambridge: Cambridge University Press. Katznelson, I., & Weingast, B. R. 2005. Peters, G. & Pierre, J. Schwartz, S. H. 1994. Economic action and social structure: The Problem Of Embeddedness. Annual Review of Political Science, 2(1): 369404. In order for research on the topic of informal institutions and IB to move forward, it is thus critical to clearly differentiate it from the literature on culture. Compositional gaps and downward spirals in international joint venture management groups. March, J. G., & Olsen, J. P. 2004. Furthermore, institutions are humanly devised in that they do not arise on their own or exist in a vacuum. Institution-based view: appreciating the 'rules of the game' More recently, increasing appreciation that the 'rules of the game' (formal and informal institutions) shape firm strategy and performance (North 1990) That 'institutions matter' is hardly novel (see Hall and Soskice 2001; Scott 1995), but how they matter is critical (Peng . Organizational institutionalism (OI) arose from sociology and organizational theory (Powell & DiMaggio, 1991). Dau, L.A. 2010. About us. The idea that institutions both constrain and enable refers to how institutions provide the boundaries and structure within which actors can operate. Analytic narratives. Much prior work in IB and other fields has treated culture and informal institutions as synonymous. Three components of individualism. Cumming et al., (2017: 128) refer to informal institutions, such as culture. However, this is only a first step, as more work is required on this topic. For example, a business contract can stipulate which activities are acceptable and unacceptable by the parties in an agreement. Institutionalization theory and the multinational corporation. An organizational field refers to a set of organizations within a given sphere, such as firms in the same industry, value chain, or location. This is a critical distinction that can lead the two perspectives to be at odds (March & Olsen, 2004, 2006; Meyer & Rowan, 1977; Scott & Meyer, 1994). University of South Carolina. This can be valuable as each perspective has different strengths and weaknesses, while also having problems in common that have proved challenging to resolve, but that may be addressed with a cross-perspective approach (Campbell, 2004; Hall & Taylor, 1996). The new institutionalism in political science. This editorial introduces the literature on informal institutions and international business (IB) as well as the Special Issue. First, it enriches institutional theory and innovation research by establishing a framework that encompasses multidimensional, formal, and informal institutional forces, with a focus on their independent and joint impacts on firms' innovation decisions and performance. Most of these authors acknowledge that the frameworks are based on underlying assumptions and logics that are often incommensurable and with foundational contradictions with those of the other frameworks. Of course, an alternative is to provide concerted efforts to integrate both literatures, which we would welcome, but doing so properly would be a more challenging approach. This SI has been an effort to launch additional work on the topic, which has been achieved with over 80 submissions, some of which appear in this SI and others that will start appearing in other IB and business journals over the next few years. 2012. Culture and cognition. One way of defining them is by explaining that informal institutions are cultural traditions, and formal institutions are state-enforced rules. Journal of International Business Studies, 40(3): 490508. Comparative Politics, 25: 275296. ), Ideas and foreign policy: Beliefs, institutions, and political change: 173206. What is an informal economic institution? Informal institutions are equally known but not laid down in writing and they tend to be more persistent than formal rules (North, 1997). Ithaca: Cornell University Press. Understanding how IB influences institutional change and vice-versa can also be a rich area for additional research. Shleifer, A., & Vishny, R. W. 1998. What is Informal Institutions. London: Palgrave MacMillan. This could include anything from grocery stores to restaurants, petrol stations, banks, insurance companies, or more. The final column draws from efforts to reconcile or combine elements of the three perspectives. Emerging economies and institutional quality: Assessing the differential effects of institutional distances on ownership strategy. Indeed, even within work on culture, there are two main traditions, each with distinct logics. Djelic, M.-L. 1998. Institutions (singular: institution) are humanly devised structures of rules and norms that shape and constrain individual behavior. Journal of International Business Studies, 43(4): 396423. Examples of these include Guanxi/Guanxiwang in China, Blats/Svyazy in Russia, Wasta in the Arab World, Yongo in Korea, Kankei in Japan, Jeito/Jeitinho in Brazil, and grease payments (Batjargal, 2007; Chen, Chen, & Xin, 2004; Chua, Morris, & Ingram, 2009; Ledeneva, 1998; Millington, Eberhardt, & Wilkinson, 2005; Opper, Nee, & Holm, 2017; Park & Luo, 2001; Smith, Torres, Leong, Budhwar, Achoui, & Lebedeva, 2012; Zhou, Wu, & Luo, 2007). Informal institutions are defined as morals, values, conventions, norms, traditions, codes of conduct, habits, attitudes, and beliefs. The internationalization of the firm: Four Swedish cases. Doctoral Dissertation. Thelen, K. 1999. This displays how little actual work has been done on informal institutions and IB, indicating a clear gap and area for future research. However, most of the work in IB on informal institutions has been in the subfields of international management and strategy, with limited work from other areas such as international entrepreneurship, and even less from other subfields of IB such as international finance, accounting, marketing, supply chain, and others. Theoretical issues in cultural psychology. Eden, L. 2010. 2007. Beyond the rule of the game: Three institutional approaches and how they matter for international business. As the names of the two traditions suggest, the most evident distinction between the two is that the values-based framework (which has received much more attention in IB) conceptualizes culture primarily as shared values, whereas the cognitions-based framework moves away from values and instead conceptualizes culture as the underlying cognitions or cognitive-schemata. Strang, D., & Meyer, J. W. 1993. New York: Russel Sage Foundation. We thus look forward to a rich and engaging academic conversation on the topic in the years to come. Suchman, M. C. 1997. This has become perhaps the most commonly used definition across disciplines, often found in work that builds on the other two institutional paradigms as well. An important aspect to understand about RCI is in what it perceives as the main incentive for action. Steinmo, S. 2001. (ed.) However, the bulk of prior research has focused on formal institutions, such as in studying how market reforms and other regulatory changes affect international business strategy and performance over time (e.g., Dau, Moore, & Kostova, 2020; Young, Welter, & Conger, 2018). Formal and informal institutions combine to govern firm behavior. Then, it reviews the literature by summarizing the three main institutional traditions to show where work on informal institutions fits in. One area in which there are more differences within each of the three institutional views than across them is in the mechanisms behind the process of change (Campbell, 2004). San Francisco: Jossey-Bass Publishers. Its focus on context makes IB particularly well suited to studying the systemic intricacies of informal institutions across contextual settings and to advance theory. Journal of International Business Studies, 46(3): 308331. Theory and Society, 22: 487511. However, defining informal and formal institutions are fairly more difficult and many give different interpretations to the definitions. Li, J., Jiang, F., & Shen, J. Gao, Y., Yang, Z., Huang, K. F., Gao, S., & Yang, W. 2018. Formal and Informal Credit Markets Jorge Pozo Central Reserve Bank of Peru February, 2023 Abstract In this work, we aim to study the implications of the interest rate cap in an emerging economy. Culture, cognition, and evolution. 1993. The interrelationships among informal institutions, formal institutions, and inward foreign direct investment. Journal of International Management, 23(3): 306325. This suggests actors will seek their own interest, but their rationality is limited by imperfect information availability and their cognitive capacity (Arthur, 1994a; Brinton & Nee, 1998; Coleman, 1990; Knight & Sened, 1998; Langlois, 1986; Rutherford, 1996; Scharpf, 1997). Institutions and organizations. When actors are unsure as to what the best way to act is, they may tend to imitate others and in the process become more isomorphic (or similar). A formal institution permits or forbids activities through laws and regulations. This is particularly common in institutional work in IB, where researchers often cite across traditions interchangeably without considering whether the views are compatible (Aguilera & Grgaard, 2019). Therefore, in the long term, change will appear much more gradual and evolutionary. Historical institutionalism in comparative politics. The former is similar to the level of analysis of the other two perspectives. Varieties of capitalism and institutional comparative advantage: A test and reinterpretation.