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

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  • Nauro Campos

Abstract

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 Renalt). 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.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 229.

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Length: pages
Date of creation: 01 Apr 1999
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Handle: RePEc:wdi:papers:1999-229

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Keywords: transition economies; economic growth; growth prospects;

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References

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  1. Durlauf, Steven N. & Quah, Danny T., 1999. "The new empirics of economic growth," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 4, pages 235-308 Elsevier.
  2. Jeffrey Sachs & Andrew M. Warner, 1996. "Achieving Rapid Growth in the Transition Economies of Central Europe," CASE Network Studies and Analyses, CASE-Center for Social and Economic Research 0073, CASE-Center for Social and Economic Research.
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  4. Denizer, Cevdet, 1997. "Stabilization, adjustment, and growth prospects in transition economies," Policy Research Working Paper Series 1855, The World Bank.
  5. Shantayanan Devarajan & Vinaya Swaroop & Heng-fu Zou, 1996. "The composition of public expenditure and economic growth," CEMA Working Papers, China Economics and Management Academy, Central University of Finance and Economics 77, China Economics and Management Academy, Central University of Finance and Economics.
  6. de Melo, Martha & Denizer, Cevdet & Gelb, Alan & Tenev, Stoyan, 1997. "Circumstance and choice : the role of initial conditions and policies in transition economies," Policy Research Working Paper Series 1866, The World Bank.
  7. Nauro F. Campos & Abrizio Coricelli, 2002. "Growth in Transition: What We Know, What We Don't, and What We Should," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 40(3), pages 793-836, September.
  8. Peter Montiel & Eduardo Borensztein, 1991. "Savings, Investment, and Growth in Eastern Europe," IMF Working Papers 91/61, International Monetary Fund.
  9. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(4), pages 1127-70, November.
  10. Ratna Sahay & Jeromin Zettelmeyer & Eduardo Borensztein & Andrew Berg, 1999. "The Evolution of Output in Transition Economies," IMF Working Papers 99/73, International Monetary Fund.
  11. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, American Economic Association, vol. 82(4), pages 942-63, September.
  12. Gerd Schwartz & Ke-young Chu, 1994. "Output Decline and Government Expenditures in European Transition Economies," IMF Working Papers 94/68, International Monetary Fund.
  13. Ratna Sahay & Carlos A. Végh Gramont & Stanley Fischer, 1998. "How Far is Eastern Europe From Brussels?," IMF Working Papers 98/53, International Monetary Fund.
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Cited by:
  1. Polterovich, Victor & Popov, Vladimir, 2007. "Democratization, Quality of Institutions and Economic Growth," MPRA Paper 19152, University Library of Munich, Germany.
  2. Martin Wagner & Jaroslava Hlouskova, 2004. "CEEC Growth Projections: Certainly Necessary and Necessarily Uncertain," Diskussionsschriften, Universitaet Bern, Departement Volkswirtschaft dp0403, Universitaet Bern, Departement Volkswirtschaft.
  3. Crafts, Nicholas & Kaiser, Kai, 2004. "Long-term growth prospects in transition economies: a reappraisal," Structural Change and Economic Dynamics, Elsevier, Elsevier, vol. 15(1), pages 101-118, March.
  4. Boeri, Tito, 2001. "Transition with Labour Supply," IZA Discussion Papers 257, Institute for the Study of Labor (IZA).
  5. Rumen Dobrinsky, 2003. "Convergence in Per Capita Income Levels, Productivity Dynamics and Real Exchange Rates in the EU Acceding Countries," Empirica, Springer, Springer, vol. 30(3), pages 305-334, September.
  6. Fidrmuc, Jan, 2001. "Economic Reform, Democracy and Growth during Post-Communist Transition," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2759, C.E.P.R. Discussion Papers.
  7. J. Fidrmuc & J. Fidrmuc, 2000. "Macroeconomic Developments in the Czech Republic and the EU Accession Process," Working Papers, International Institute for Applied Systems Analysis ir00008, International Institute for Applied Systems Analysis.
  8. Polterovich, Victor & Popov, Vladimir, 2005. "Democracy and Growth Reconsidered: Why Economic Performance of New Democracies is not Encouraging," MPRA Paper 21606, University Library of Munich, Germany.
  9. Ofer, Gur, 2002. "The Meltdown of the Russian State: Piroska Mohacsi Nagy, Edward Elgar publishers, Cheltenham, UK and Northampton, MA, USA, 2000," European Journal of Political Economy, Elsevier, Elsevier, vol. 18(3), pages 611-613, September.
  10. Barrell, Ray & Dawn Holland & Nigel Pain, 2002. "An Econometric Macro-model of Transition: Policy Choices in the Pre-Accession Period," Royal Economic Society Annual Conference 2002, Royal Economic Society 15, Royal Economic Society.
  11. Fidrmuc, Jan, 2000. "Liberalization, democracy and economic performance during transition," ZEI Working Papers B 05-2000, ZEI - Center for European Integration Studies, University of Bonn.
  12. Campos, Nauro F., 2000. "Context is everything : measuring institutional change in transition economies," Policy Research Working Paper Series 2269, The World Bank.
  13. Polterovich, Victor & Popov, Vladimir, 2007. "Демократизация И Экономический Рост
    [Democratization and Economic Growth]
    ," MPRA Paper 23012, University Library of Munich, Germany.
  14. Fidrmuc, Jan, 2001. "Democracy in transition economies: Grease or sand in the wheels of growth?," ZEI Working Papers B 09-2001, ZEI - Center for European Integration Studies, University of Bonn.
  15. J. Gacs, 2000. "Macroeconomic Developments in Hungary and the Accession Process," Working Papers, International Institute for Applied Systems Analysis ir00013, International Institute for Applied Systems Analysis.
  16. J. Fidrmuc & J. Fidrmuc, 2000. "Macroeconomic Developments in Slovakia and the EU Accession Process," Working Papers, International Institute for Applied Systems Analysis ir00007, International Institute for Applied Systems Analysis.

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