Abstract
Econometrics of transition growth showed that Central Europe recovered earlier because stabilisation, liberalisation and institutions came earlier. Commonwealth of Independent States (CIS) still lag on reforms, and yet growth surged after 2000. This paper shows that the puzzle is only partly explained by energy prices; thus a new question is asked: was there some threshold of reforms sufficient to re-start growth? Indeed, the CIS reached in 2000 the same threshold Central Europe had prior to recovery. Exploring the surprisingly low threshold level of institutions reveals two important insights: institutions lagged well behind liberalisation everywhere; there is not a single country with institutions moving faster than liberalisation.
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Notes
This paper was originally prepared for presentation at the Seventh Annual Global Development Conference, St. Petersburg, Russia, 19 January 2006. I am grateful to Lucio Vinhas de Souza, Marek Rohozynski and Waldemar Skrobacki, the participants of a seminar presentation at the Munk Centre, October 2006., and two anonymous referees for suggestions. Nikola Milicic provided valuable research assistance.
Two surveys of this literature provide a thorough comparative analysis of the approaches and findings: Campos and Coricelli (2002) and Havrylyshyn (2001).
Gros and Steinherr (2004) use several quantitative measures to show that after 10 years, the transition may have been almost over for some of the Central Europe and the Baltics countries, but was far from over in South-east Europe and the CIS; pp. 116–127.
Growth studies estimating TFP have not been common, but those carried out generally find that it is high, confirming the notion that efficiency gains are the most important part of early recovery (DeBroeck and Koen, 2000).
Williamson (2005) discusses whether anchors should be seen as part of the Washington Consensus or not.
While many surveys of privatisation effects show this, it is perhaps most thoroughly explored in the econometrics of Zinnes et al. (2001).
The groupings shown reflect the degree of progress in transition as measured by the EBRD, following the analysis in Havrylyshyn (2006), which shows that the EBRD measure is highly correlated with many other possible measures of transition progress. The correspondence with geography is apparent, but some marginal cases exist; thus, Slovenia and Croatia may be part of SEE, but their income and advanced transition progress are much closer to Central Europe.
See Ahrend, Chapter 5 in Vinhas de Souza and Havrylyshyn (2006).
However, growth in the Baltics is higher and hence consistent with the model. Part of the explanation there may be that they have avoided the deterioration of fiscal balances and possible crowding-out effects seen in Central Europe.
The dilemma is approached in a different way by Rzonca and Cizkowski (2003), who argue convincingly that since the TPI increases asymptotically to the 4.3 maximum, comparing absolute levels or even changes in absolutes for countries at different stages of transition is not correct.
Mohacs-Nagy (2000, p. 30).
The reason for using this proxy rather than much more detailed available indices is given in the penultimate section.
The variation for individual countries was not substantial.
This section is based largely on Johnson and Subramanian (2005), although of course the author is fully responsible for the interpretation.
A very balanced assessment, although it takes the gradualist and institutionalist position, is in Roland (2001).
North (2006), in a succinct summary of his well-known work on institutions, emphasises that one must understand three levels of institutions: the formal ones, their informal counterparts or complements and the enforcement mechanisms. The vast surveys from which data now come have usually been carefully designed to reflect all this in the summary of perceptions by affected agents and expert observers.
Alina-Pisano (2006) gives many examples of such ‘institutional facades’ in the post-communist period.
Their index of infrastructure reform is arguably not relevant to either and I have excluded it. It typically has values lower than liberalisation and about the same as institutional development.
One can think of this in terms of the recently popular notion of policy ownership or commitment: where the overall commitment to a liberal market and liberal democracy was strong, institutional development proceeded as fast as possible, although this often meant not as fast as liberalisation simply because the latter could be faster.
The table's group averages are calculated from individual country values as in EBRD, but are not shown here to save space.
Admittedly, the INST measure here can be criticised for giving most weight to market institutions. But many studies exist showing that these three countries lag very far behind in measures of democracy and civil society.
No 1994 data available for conflicted Bosnia-Herzegovina and Serbia-Montenegro.
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Havrylyshyn, O. Growth Recovery in CIS Countries: The Sufficient Minimum Threshold of Reforms. Comp Econ Stud 50, 53–78 (2008). https://doi.org/10.1057/ces.2008.5
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DOI: https://doi.org/10.1057/ces.2008.5