Testing Instability in Growth Patterns in the Course of Transition: Evidence for Balkan Countries

Stylised facts of GDP growth patterns of developing (or transition) countries reveal huge difference to the GDP pattern observed in developed countries. Namely, they are characterised by a specific characteristic - instability, much higher and different from the ones observed in developed countries. This paper brings forward the assessment of the instability of growth, which is observed and tested in the case of several Balkan economies. In the course of transition, they experienced sudden turns from positive to negative average growth rates (or vice versa) caused by many structural, economic, political and social changes. Hence, the main purpose of the paper is to review the very recent literature on instability in growth and to empirically analyse it in the case of Balkan group of transition economies, performed by use of the simple linear regression analysis on the GDP growth data series. Main goal is to determine whether GDP growth patterns in the course of transition were characterised by instability and breaks. The results suggest that the growth process in Balkan economies cannot be described simply by a single rising trend, since the simple linear regression analysis shows very poor statistical fit. In general, the assessment guides towards an in-depth study of the instability of growth in the course of transition with a novel growth concept that will allow for shifts or breaks in trend, accompanied by a non-linear modelling approach that will allow the parameters to adjust to reflect structural changes in the course of transition.