The Missing Window of Opportunity and Quasi-Experimental Effects of Institutional Integration: Evidence from Ukraine

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Abstract We examine the contribution of institutional integration to a country’s institutional capacity. To this end, we examine the effects of remaining outside of the European integration process for 28 Ukrainian provinces in the period 1996–2020. We construct novel, machine-learning supported subnational estimates of institutional capacity and quality for Ukraine and for central and eastern European countries that have completed institutional integration. Based on the latent residual component extraction of institutional quality from the existing governance indicators, we use Bayesian posterior analysis under non-informative objective prior function to construct institutional quality indicators from more than 1.8 million randomly sequenced samples across Markov chain Monte Carlo simulations. By comparing the residualized institutional quality trajectories of Ukrainian provinces with their central and eastern European peers that were admitted to the European Union in 2004 and after, we assess the institutional quality cost of failing to institutionally integrate with the EU. Based on the large-scale synthetic control and difference-in-differences analysis, we find evidence of large-scale negative institutional quality and capacity effects of missing the European integration path such as heightened political instability and rampant deterioration of the rule of law and control of corruption. The statistical significance of the estimated effects is evaluated across a comprehensive placebo simulation with more than 34 billion placebo averages for each institutional quality outcome.