Economic growth in transition economies, 1989-2004

The thesis aims to enhance our understanding of growth patterns in reforming economies, both deepening empirical insights and yielding practical policy suggestions. The research takes advantage of the growing theoretical literature, accumulated data, and the recent proliferation of empirical studies to undertake a thorough, theoretically and econometrically grounded comparative study based on a dynamic econometric framework while also paying heed to the specificities of the transition economies. The central transition debates focus on market-oriented reform and its role in changing the old systems. In this context several important issues emerge with regard to growth in transition: a) the changing determinants of economic growth according to the progress of reform and the timings of transition b) the simultaneous importance of both micro and macroeconomic aspects for growth in transition c) the impact of institutional quality on the progress of transitional reform and the stabilisation programme, which in turn determine economic performance via the level of factor accumulation, productivity growth, and the effectiveness of policy. With this in mind, our econometric estimations consistently show the importance of the interactions between institutional development, macroeconomic stability, and economic growth. The richness of variation in institutional development provides a fertile testing ground for the comparative analysis of economic institutions. Poor institutional quality has worsened transitional recession through various channels - particularly through macroeconomic instability - and thus we are able to identify the relationship between institutional reform, macroeconomic instability, and economic performance. Therefore, the central finding of this thesis empahsises the simultaneous importance of both micro- and macroeconomic reforms: poor governance affects macroeconomic instability, which in turn has a robustly and significantly negative impact on growth. This finding is consistent with that based on world-wide samples. In addition, although we cannot confirm that standard determinants of economic growth are important as in non- transition economies, this trend may change with the further progress of transitional or institutional reforms.