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Uncertainty and growth: the case of transition economies

Author

Listed:
  • Andrej Susjan

    (Faculty of Economics, University of Ljubljana, Slovenia)

  • Tjasa Redek

    (Faculty of Economics, University of Ljubljana, Slovenia)

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.

Suggested Citation

  • Andrej Susjan & Tjasa Redek, 2007. "Uncertainty and growth: the case of transition economies," SCEME Working Papers: Advances in Economic Methodology 013/2007, SCEME.
    • Handle: RePEc:sti:wpaper:013/2007
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    File URL: http://www.sceme.org.uk/wps/SCEME013_Susjan_2007.pdf
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    More about this item

    Keywords

    uncertainty; economic transition; institutions; economic growth; foreign direct investment;
    All these keywords.

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • P27 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Performance and Prospects
    • P30 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - General

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