King's College London

Strong institutions and accountable governments are imperative for national prosperity. Yet the development of such institutions has presented a continuous challenge for many countries around the world. In this study we bring attention to the negative implications of global interdependence and institutional arbitrage opportunities that enable economic actors to solve for institutional weaknesses and constraints in the domestic realm by using foreign institutions. We argue that such opportunities lower the propensity of asset-holders, presumably interested in strong institutions at home, to organize the collective action and take the risk of lobbying for better institutions. Based on the case of post-Soviet Russia we demonstrate the main ways through which Russia’s capital-owners make use of foreign legal and financial infrastructures such as capital flight, the use of foreign corporate structures, offshore financial centers, real estate markets, the round-tripping of foreign direct investment, and reliance on foreign law in contract-writing and foreign courts in dispute-resolution.