Comparative Economic Studies

TABLE 1

FROM:

Shock Therapy versus Gradualism Reconsidered: Lessons from Transition Economies after 15 Years of Reforms

Vladimir Popov

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Table 1. Regression of change in GDP in 1989–1996 on initial conditions, policy factors and rule of law and democracy indices, robust estimates

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Equations, number of observations/variables1 (N=28)2 (N=28)3 (N=28)4 (N=28)5 (N=28)6 (N=28)7 (N=28)
Constant5.3*** 5.4*** 5.2*** 5.4*** 5.4*** 5.5*** 5.7***
Distortions, % of GDPa -0.005** -0.005** -0.003-0.006** -0.007*** -0.007*** -0.007***
1987 PPP GDP per capita, % of the US level-0.009** -0.006* -0.007** -0.007** -0.009*** -0.008*** -0.008***
War dummyb    -0.019c -0.036*** -0.037*** -0.045***
Decline in government revenues as a % of GDP from 1989–1991 to 1993–1996    -0.011*** -0.011*** -0.011***
Liberalisation index  0.05  -0.020.03
Log (inflation, % a year, 1990–1995, geometric average)-0.016*** -0.020*** -0.018*** -0.017*** -0.013*** -0.013*** -0.014***
Rule of law index, average for 1989–1997, %0.008***       
Democracy index, average for 1990–1998, %-0.005***      -0.003**
Ratio of the rule of law to democracy index 0.07*** 0.07*** 0.06*** 0.05*** 0.05***  
Adjusted R 2, %82838385919190

 Dependent variable=log (1996 GDP as a % of 1989 GDP). For China, all indicators are for the period of 1979–1986 or similar.

  *, **, ***Significant at 1%, 5% and 10% level, respectively.

a Cumulative measure of distortions as a % of GDP equal to the sum of defense expenditure (minus 3% regarded as the 'normal' level), deviations in industrial structure and trade openness from the 'normal' level, the share of heavily distorted trade (among the FSU republics) and lightly distorted trade (with socialist countries) taken with a 33% weight (see Popov, 2000 for details).

b Equals 1 for Armenia, Azerbaijan, Croatia, Georgia, Macedonia and Tajikistan and 0 for all other countries.

c Significant at 13% level.

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