DOI: 10.5281/zenodo.15290369
title: Corporate Governance in India and Pakistan: Critical Macro-Finance, Legal Origins, and Institutional Divergence

description: CODE.PY OUTPUT

Institutional Benchmarking and Regression Results

To contextualize institutional performance, we first compare India and Pakistan against the global mean of common-law economies on three governance indicators: Protecting Minority Investors (PMI), Enforcing Contracts (EC), and a composite index of the Legal-Political Environment. The global averages for common-law countries are:





PMI: 18.6




EC: 37.9




Legal-Political Environment: 7.44 (on a 0–10 scale)



Relative to these benchmarks:





India outperforms the PMI average by 5.6 ranks, but underperforms EC by 125.1 ranks and legal-political environment by 2.74 points.




Pakistan underperforms on all three: +9.4 ranks in PMI (worse), +118.1 ranks in EC, and –4.24 points on legal-political environment.



These gaps suggest that formal investor protections (PMI) are stronger in India, but contract enforcement and broader institutional trust lag significantly in both countries.

Regression Analysis: Institutional Predictors of Governance Outcomes

We ran robust Ordinary Least Squares (OLS) regressions with Control of Corruption (cc), Rule of Law (rl), and Political Stability (pv) (from the Worldwide Governance Indicators) as predictors of country performance in both PMI and EC.

✅ Protecting Minority Investors (PMI)





Model Fit: R² = 0.364; F(3, 182) = 46.91; p < 0.001




Significant predictors:





Rule of Law (β = –62.74, p < 0.001): Strong negative relationship, consistent with countries with weaker rule of law having higher PMI ranks (i.e., worse protections).




Political Stability (β = +22.28, p < 0.001): Higher stability is associated with better (lower) PMI rank.




Control of Corruption (β = +15.91, p = 0.078): Marginally significant.





✅ Enforcing Contracts (EC)





Model Fit: R² = 0.389; F(3, 182) = 52.32; p < 0.001




Significant predictors:





Rule of Law (β = –47.55, p < 0.001): Again, weak rule of law predicts poor performance.




Political Stability (β = +11.27, p = 0.029): More stable environments enforce contracts more efficiently.




Control of Corruption was not significant (p = 0.61).





These results underscore the salience of Rule of Law and Political Stability in explaining variation in corporate governance effectiveness across countries.

Peer-Adjusted Z-Scores: Rule of Law and Judicial Independence

To further refine the comparison, we standardized India and Pakistan’s scores relative to global peers using z-scores:





India: Judicial Independence z = +1.39, Rule of Law z = +1.28




Pakistan: Judicial Independence z = +0.25, Rule of Law z = –0.95



This highlights India’s relative institutional strength in legal capacity, while Pakistan falls below global norms, particularly on rule of law.

CODE2.PY OUTPUT

Summary Statistics and Cross-National Comparison

We begin by comparing key governance indicators for India and Pakistan over the 1996–2020 period using data from the V-Dem dataset. Table X reports descriptive statistics for six core institutional quality variables:





v2x_rule: Rule of Law




v2x_jucon: Judicial Constraints on the Executive




v2xlg_legcon: Legislative Constraints




v2x_freexp: Freedom of Expression




v2x_polyarchy: Electoral Democracy Index




v2x_corr: Control of Corruption



Key Observations from the 23-year panel:





Rule of Law (v2x_rule): India displays a high mean score of 0.579 (SD = 0.029), while Pakistan lags significantly behind at 0.237 (SD = 0.023).




Judicial Constraints (v2x_jucon): India again leads with a mean of 0.814, compared to 0.537 for Pakistan.




Control of Corruption (v2x_corr): Interestingly, Pakistan scores higher (0.868) than India (0.566), suggesting a potential data artifact or performative anti-corruption signaling.



These descriptive statistics show a consistent pattern of stronger rule-of-law institutions in India. However, India’s governance edge does not hold across all indicators—especially corruption control, which exhibits counterintuitive results.

T-Test Results: India vs. Pakistan

We formally test whether the differences in means between India and Pakistan are statistically significant using two-sample t-tests:








Variable
t-statistic
p-value
Significance




Rule of Law (v2x_rule)
44.419
0.0000
*** Significant ***


Judicial Constraints
9.488
0.0000
*** Significant ***


Legislative Constraints
23.061
0.0000
*** Significant ***


Freedom of Expression
2.049
0.0471
* Marginally Significant *


Polyarchy
12.061
0.0000
*** Significant ***


Control of Corruption
–24.935
0.0000
*** Significant *** (reversed)






 




The highly significant differences in nearly all variables confirm that India and Pakistan follow distinct institutional trajectories—though India’s relative weakness in corruption control invites further scrutiny under the CMF framework.

Structural Breaks in India’s Democratic Governance

Using the ruptures package and a rolling t-test approach, we detect structural breakpoints in India’s democratic trajectory:





Based on v2x_polyarchy, break years are identified at 2011, 2016, and 2021.




The rolling t-test method suggests more granular shifts starting as early as 2001, with notable accelerations around 2011–2019.



These breakpoints align with major political and constitutional developments in India and support the CMF argument that formal continuity in legal benchmarks may obscure deeper institutional volatility.

CODE3.PY OUTPUT

Summary Statistics and Institutional Quality Comparison: India vs. Pakistan

We begin by reporting descriptive statistics for two core institutional variables—Control of Corruption (v2x_corr) and Judicial Constraints on the Executive (v2x_jucon)—drawn from the V-Dem dataset for the years 1996–2020:





Control of Corruption (v2x_corr):





India: Mean = 0.566, SD = 0.027, indicating relatively consistent performance with moderate corruption control.




Pakistan: Mean = 0.868, SD = 0.051, suggesting surprisingly strong corruption scores, but with greater variability. This may reflect methodological distortions or performative anti-corruption institutions that lack substantive checks—a key focus of our Critical Macro-Finance (CMF) interpretation.






Judicial Constraints (v2x_jucon):





India: Mean = 0.814, SD = 0.013, indicating strong and stable judicial oversight over executive actions.




Pakistan: Mean = 0.537, SD = 0.140, reflecting weaker, more volatile institutional constraints.





T-Test Results: Are India and Pakistan Statistically Different?

Two-sample t-tests confirm that these differences are highly statistically significant:








Variable
t-statistic
p-value
Interpretation




Control of Corruption
–24.935
0.0000
Significant (Pakistan higher)


Judicial Constraints
9.488
0.0000
Significant (India higher)






 




These results validate the hypothesis that India and Pakistan exhibit substantially divergent institutional trajectories—though not always in expected directions. India shows stronger judicial oversight, while Pakistan appears to outperform in corruption metrics, warranting skepticism about benchmarking validity.

Cross-Country Correlation Analysis (RQ3)

To assess whether stronger judicial constraints co-occur with better corruption control globally, we compute a Pearson correlation across the full international sample:





Correlation between v2x_corr and v2x_jucon:r = –0.737, p = 0.0000



This strong negative correlation implies that across countries, higher judicial constraint scores are associated with lower perceived corruption control, a counterintuitive result that may reflect measurement paradoxes or performative institutionalism—core issues addressed by the CMF framework.

CODE4.PY OUTPUT

India’s Ease of Doing Business and Governance Discrepancy

Despite ranking 63rd globally in the 2020 World Bank Ease of Doing Business (EoDB) index—a relatively strong position for a large emerging market—India exhibits a governance discrepancy when institutional quality metrics are considered. According to V-Dem data, India’s Control of Corruption (v2x_corr) stands at 0.623, and Judicial Constraints on the Executive (v2x_jucon) at 0.776, suggesting moderate to strong rule-based governance. Its Polity2 score of 9 further classifies India as a high-functioning democracy.

However, a calculated discrepancy score of –1.093 (EoDB rank adjusted by governance quality) reveals a misalignment: India’s legal-political institutions do not fully justify its EoDB performance. This supports the hypothesis that global benchmarking may overstate reform effectiveness by emphasizing surface-level regulatory improvements while underweighting deeper institutional integrity—a central theme of the Critical Macro-Finance (CMF) lens.