We use the 2005—2012 data for Russian regions to show that higher regional institutional
quality strongly benefits institutionally dependent manufacturing sectors in terms of both
gross output levels and growth rates. Unlike the existing literature on this topic, which uses
essentially cross-sectional specifications, we emphasize the results of panel data analysis. This
approach mitigates endogeneity concerns and allows for calculating full marginal effects of
institutions on manufacturing sectors with different degrees of institutional dependence. Our
results imply that significant institutional improvements are needed in order for the Russian
economy to diversify away from heavy reliance on oil and natural gas.
