Context is everything : measuring institutional change in transition economies

The author presents measures with which to map institution building during the transition from centrally planned to market economies. Data collection and indicators are measured in terms of five institutional dimensions of governance: a) accountability; b) quality of the bureaucracy; c) rule of law; d) character of policy-making process; and e) strength of civil society. The author highlights the differences over time and between Central and Eastern European countries and those of the former Soviet Union. In terms of effects of per capita income and school enrollment, he finds the rule of law to be the most important institutional dimension, both for the sample as a whole and for differences between the two regions. In terms of life expectancy, however, the quality of the bureaucracy plays the most crucial role. One important message the author draws from the results is that institutions do change over time and are by no means as immutable as the literature has suggested. The range of feasible policy choices (for changing institutions) may be much wider than is often assumed.Decentralization,Economic Theory&Research,Corruption&Anitcorruption Law,Public Sector Corruption&Anticorruption Measures,Legal Products,Governance Indicators,National Governance,Corruption&Anitcorruption Law,Public Sector Corruption&Anticorruption Measures,Economic Policy, Institutions and Governance

Back to the Future: The Growth Prospects of Transition Economies Reconsidered

There are two strands in the empirical literature on economic growth in transition economies. One focuses on the impact of reforms, while the other emphasizes sustainability issues and the growth prospects these economies face. The most common strategy, in the latter, has been to use coefficients from growth regressions, on large samples of developing countries, and impose them on transition economies’ data to obtain projected growth rates. We refer to it as the BLR approach (because it uses specifications from Barro, and Levine and Renelt). We claim that the reported growth rates are suspiciously similar, painting an overly optimistic picture and yielding few policy lessons. We re-estimate the BLR equations for data on transition economies themselves and find that government expenditures have been positively associated and human capital has been negatively associated with output growth. These results contrast sharply with the assumptions and findings from the BLR approach, questioning its might and challenging our understanding of the transition process in its key dimension.Transition economies, economic growth, growth prospects.

After, Before and During: Returns to Education in the Hungarian Transition

How valuable are the education and skills acquired under socialism in a market economy? This paper uses data for about 3 million Hungarian wage earners, from 1986 to 1998, to throw light on this question. We find that returns to schooling reach 10 percent early on and remain at this high level. These estimates are larger than for other transition economies, but similar to those for middle-income developing countries. With the gap in average years of schooling unremitting, we argue that the Hungarian stock of human capital is considerably less than the existing figures have led us to believe.http://deepblue.lib.umich.edu/bitstream/2027.42/39860/3/wp475.pd

Growth, Volatility & Political Instability: Non Linear Time Series Evidence for Argentina 1896-2000

What is the relationship between economic growth and its volatility? Does political instability affect growth directly or indirectly, through volatility? This paper tries to answer such questions using a power-ARCH framework with annual time series data for Argentina from 1896 to 2000. We show that while assassinations and strikes (what we call ìinformalî political instability) have a direct negative effect on economic growth, ìformalî political instability (constitutional and legislative changes) has an indirect (through volatility) negative impact. We also find preliminary support for the idea that while the effects of ìformalî instability are stronger in the long-run, those of ìinformalî instability are stronger in the short-run.http://deepblue.lib.umich.edu/bitstream/2027.42/64428/1/wp891.pd

Foreign Direct Investment as Technology Transferred: Some Panel Evidence from the Transition Economies

Although the theoretical literature has identified various sizeable benefits from foreign direct investment inflows (FDI), the empirical literature has been unable to establish a positive and significant impact of FDI on the rates of economic growth of host countries. One reason for this difficulty is that theory equates FDI to technology transferred, while in most countries and regions of the world FDI encompasses an array of arrangements that goes well beyond pure technology transfer. This paper tests for the effects of FDI on growth in a set of countries in which FDI is purer technology transferred: the 25 Central and Eastern European and former Soviet Union transition countries between 1990 and 1998. Our main finding is that, in this more appropriate setting, FDI has a positive and significant impact on economic growth as theory predicts.http://deepblue.lib.umich.edu/bitstream/2027.42/39822/3/wp438.pd

Growth in Transition: What We Know, What We Don't, and What We Should

This essay surveys macroeconomic issues that marked the transition from centrally planned to market economy in Central and Eastern European and former Soviet Union countries. We first establish a set of stylized facts of the transition so far, namely: (1) output fell, (2) capital shrank, (3) labor moved, (4) trade reoriented, (5) the structure changed, (6) institutions collapsed, and (7) transition costs. We then critically survey the theoretical literature on transition, discussing various explanations for the initial output fall as well as medium term issues, such as optimal speed of transition, disorganization, institutions and sectoral reallocation as a source of output dynamics. Last, we review the empirical literature to assess how well it translates the theoretical models and explains the stylized facts. The essay concludes with a succinct list of suggestions for future research.http://deepblue.lib.umich.edu/bitstream/2027.42/39854/3/wp470.pd

Does Reform Work? An Econometric Examination of the Reform-Growth Puzzle

Why are socially beneficial reforms not implemented? One simple answer to this question (which has received little attention in the literature) is that this may be caused by generalised uncertainty about the effectiveness of reforms. If agents are unsure about whether a proposed reform will work, it will be less likely to be adopted. Despite the numerous benefits economists assign to structural reforms, the empirical literature has thus far failed to establish a positive and significant effect of reforms on economic performance. We collect data from 43 econometric studies (for more than 300 coefficients on the effects of reform on growth) and show that approximately one third of these coefficients is positive and significant, another third is negative and significant, and the final third is not statistically significant different from zero. In trying to understand this remarkable variation, we find that the measurement of reform and controlling for institutions and initial conditions are main factors in decreasing the probability of reporting a significant and positive effect of reform on growth.http://deepblue.lib.umich.edu/bitstream/2027.42/57250/1/wp870 .pd

So Many Rocket Scientists, So Few Marketing Clerks: Occupational Mobility in Times of Rapid Technological Change

The transition from centrally planned to market economy involves a process of massive occupational change that has been largely neglected in the literature. This paper investigates this process using data from the 1995 Estonian Labour Force Survey. We find that between 35 and 50 percent of wage earners changed occupations from 1989 to 1995 and that job tenure is a consistently important determinant of occupational mobility. Our results also show the speed with which the market mechanism takes root: the returns to current and alternative occupations play, over these few years, increasingly important roles in explaining occupational change.http://deepblue.lib.umich.edu/bitstream/2027.42/39937/3/wp552.pd

WHY DOES FDI GO WHERE IT GOES? NEW EVIDENCE FROM THE TRANSITION ECONOMIES

This paper examines the importance of agglomeration economies and institutions vis-à-vis initial conditions and factor endowments in explaining the locational choice of foreign investors. Using a unique panel data set for 25 transition economies between 1990 and 1998, we find that the main determinants are institutions, agglomeration and trade openness. We find important differences between the Eastern European and Baltic countries, on the one hand, and the former Soviet Union countries on the other: in the latter group, natural resources and infrastructure matter, while agglomeration matters only for the former group.http://deepblue.lib.umich.edu/bitstream/2027.42/39959/3/wp573.pd

Foreign Direct Investment and Structural Reforms: Evidence from Eastern Europe and Latin America

This paper investigates the role of structural reforms ñ privatization, financial reform and trade liberalizationñ as determinants of FDI inflows based on newly constructed dataset on structural reforms for 19 Latin American and 25 Eastern European countries between 1989 and 2004. Our main finding is a strong empirical relationship from reforms to FDI, in particular, from financial liberalization and privatization. These results are robust to different measures of reforms, split samples, and potential endogeneity and omitted variables biases.http://deepblue.lib.umich.edu/bitstream/2027.42/64417/1/wp906.pd