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Uncertainty and growth: the case of transition economies

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  • Andrej Susjan

    (Faculty of Economics, University of Ljubljana, Slovenia)

  • Tjasa Redek

    (Faculty of Economics, University of Ljubljana, Slovenia)

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    Abstract

    The paper investigates the relationship between fundamental uncertainty, a recurrent theme in post-Keynesian economic literature, and economic performance in transition economies. Uncertainty in the transitional economic environment is enhanced by factors such as institutional transformation, political and social instability, and legacies of the past. To capture the changes in the levels of uncertainty, the authors have designed the uncertainty index, based on a weighted selection of Heritage Foundation and Freedom House data. The correlation between the uncertainty index and growth is strong and clearly negative. Panel data analysis based on a growth model, supplemented by variables to simulate transitional cycle, and performed on a sample of transition economies for the period 1995-2002, confirms that uncertainty has a negative impact on economic growth.

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    Bibliographic Info

    Paper provided by SCEME in its series SCEME Working Papers: Advances in Economic Methodology with number 013/2007.

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    Length: 32 pages
    Date of creation: Jan 2007
    Date of revision:
    Handle: RePEc:sti:wpaper:013/2007

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    Related research

    Keywords: uncertainty; economic transition; institutions; economic growth; foreign direct investment;

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