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Reforms and growth in transition: re-examining the evidence

  • Elisabetta Falcetti

    ()

    (European Bank of Reconstruction and Development)

  • Tatiana Lysenko

    (European Bank of Reconstruction and Development)

  • Peter Sanfey

    ()

    (European Bank of Reconstruction and Development)

A positive link between progress in market-oriented reforms and cumulative growth has been recorded across transition countries. Some less reform-minded countries, however, have also grown strongly in recent years. This paper examines whether there is a robust causal impact of reforms on growth, and whether there are important feedback influences from growth to reform. Strong evidence has been found for both effects. Progress in transition in one period can significantly affect growth in the subsequent period, and this growth can act as an immediate spur to further reform. While the importance of initial conditions as a determinant of growth has declined over time, fiscal surpluses are positively associated with higher growth. Other factors such as recovery, oil prices and external growth also drive growth to some extent but do not mitigate the importance of reforms. These results still hold when one controls for the influence of the current level of output on future growth.

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Paper provided by European Bank for Reconstruction and Development, Office of the Chief Economist in its series Working Papers with number 90.

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Length: 27 pages
Date of creation: Jun 2005
Date of revision:
Publication status: Published in E. Falcetti, T. Lysenko and P. Sanfey (2006), Journal of Comparative Economics, 34(3), pp. 421-445.
Handle: RePEc:ebd:wpaper:90
Contact details of provider: Postal: One Exchange Square, London EC2A 2JN
Web page: http://www.ebrd.com/pages/research/publications/workingpapers.shtml

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