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Market Reforms and Growth in Post-socialist Economies: Evidence from Panel Cointegration and Equilibrium Correction Model

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  • Igor Pelipas

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  • Alexander Chubrik

    ()

Abstract

In this paper the impact of market reforms on economic growth has been analyzed using the panel data for 26 post-socialist economies over the period between 1989 and 2005. Taking into account the dynamic properties of the data, the concepts of cointegration and equilibrium correction model for panel data has been used as the analytical framework. First, well-specified regression models have been obtained. Second, long and short run aspects of ???reforms-growth??? relationship have been considered. Out analysis has detected the existence of cointegration between the level of ERBD reform index and the level of real GDP per capita. This is interpreted as the presence of the long run relationship between these indicators. Third, it has been found that there is a statistically significant positive influence of economic reforms on economic growth in the long run. In addition, market reforms positively influence economic growth in the short-run, but with a one-year lag. The equilibrium correction mechanism in corresponding regressions reflects existing biases of the analyzed indicators from the equilibrium trajectory, as well as direction and speed of adjustment to this trajectory. Our approach to modeling of the relationship between market reforms and economic growth explains a puzzle of high rates of economic growth in some countries with a relatively low level of ERBD reform index. Finally, in contrast to other studies employing a different methodology, statistically significant influence of economic growth on market reforms has been established both in the long and short run, our study shows that there is no such relationship.

Suggested Citation

  • Igor Pelipas & Alexander Chubrik, 2008. "Market Reforms and Growth in Post-socialist Economies: Evidence from Panel Cointegration and Equilibrium Correction Model," William Davidson Institute Working Papers Series wp936, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2008-936
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    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/64403/1/wp936.pdf
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    References listed on IDEAS

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    1. Stanley Fischer & Ratna Sahay, 2000. "The Transition Economies After Ten Years," IMF Working Papers 00/30, International Monetary Fund.
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    3. Jakob De Haan & Susanna Lundström & Jan-Egbert Sturm, 2006. "Market-oriented institutions and policies and economic growth: A critical survey," Journal of Economic Surveys, Wiley Blackwell, vol. 20(2), pages 157-191, April.
    4. Karsten Staehr, 2006. "Linkages between Political and Economic Reforms in Post-Communist Countries," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 32, pages 113-138.
    5. Ian Babetskii & Nauro Campos, 2006. "Does Reform Work? An Econometric Examination of the Reform-Growth Puzzle," William Davidson Institute Working Papers Series wp870, William Davidson Institute at the University of Michigan.
    6. Karsten Staehr, 2005. "Reforms and Economic Growth in Transition Economies: Complementarity, Sequencing and Speed," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 2(2), pages 177-202, December.
    7. Roxana Radulescu & David Barlow, 2002. "The relationship between policies and growth in transition countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(3), pages 719-745, November.
    8. S. Fisher & R. Sahay & C. A. Vegh, 1997. "Stabilization and Growth in Transition Economies: The Early Experience," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 5.
    9. Berta Heybey & Peter Murrell, 1999. "The relationship between economic growth and the speed of liberalization during transition," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 3(2), pages 121-137.
    10. Oleh Havrylyshyn, 2001. "Recovery and Growth in Transition: A Decade of Evidence," IMF Staff Papers, Palgrave Macmillan, vol. 48(4), pages 1-4.
    11. Falcetti, Elisabetta & Lysenko, Tatiana & Sanfey, Peter, 2006. "Reforms and growth in transition: Re-examining the evidence," Journal of Comparative Economics, Elsevier, vol. 34(3), pages 421-445, September.
    12. Yegor T. Gaidar, 2005. "Recovery Growth as a Stage of Post-Socialist Transition," CASE Network Studies and Analyses 0292, CASE-Center for Social and Economic Research.
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    Cited by:

    1. Iwasaki, Ichiro & Kumo, Kazuhiro, 2016. "Decline and Growth in Transition Economies: A Meta-Analysis," CEI Working Paper Series 2016-9, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    2. Jan Babecky & Tomas Havranek, 2013. "Structural Reforms and Growth in Transition: A Meta-Analysis," William Davidson Institute Working Papers Series wp1057, William Davidson Institute at the University of Michigan.
    3. Jan Babecky & Tomas Havranek, 2013. "Structural Reforms and Economic Growth: A Meta-Analysis," Working Papers 2013/08, Czech National Bank, Research Department.
    4. Jan Babecky & Tomas Havranek, 2014. "Structural reforms and growth in transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 22(1), pages 13-42, January.

    More about this item

    Keywords

    post-socialist economies; market reforms; economic growth; panel cointegration; equilibrium correction model; EBRD transition indicators;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform
    • P30 - Economic Systems - - Socialist Institutions and Their Transitions - - - General

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