Influence of Trade and Institutions on Economic Growth in Transitional Economies: Evidences from Countries from Central and Eastern Europe and Western Balkans
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Abstract
The importance of institutions and free trade for economic growth is widely acknowledged in recent economic literature. In this paper we are focused on determining the fractional effects of changes of institutions and trade on economic growth as dependent variable. The analysis includes selected transitional economies from Central and Eastern Europe and Western Balkans. In order to estimate the effect on the institutions and trade on growth rates we develop an ordinary least squares (OLS) panel regression model. The model examines 16 cross section units (countries) in the period 2000-2016. The novelty of our work is that this is the first organized effort to inspect the importance of
institutions and trade on economic prosperity in this specific geographic area. Cross-country log-log regressions models demonstrate that both institutions and trade are statistically significant determinants the gross domestic product per capita in the selected economies.
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References
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determinants of economic growth.” In Search of Prosperity: Analytic Country Studies on
Growth. Princeton, NJ: Princeton University Press.
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growth. Princeton, NJ: Princeton University Press.
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processes. Prebisch Lecture, Geneva: UNCTAD
Wei, Shang-Jin. 2000. “Natural openness and good government”, NBER Working Paper 7765, Cambridge.
World Bank Group. 2017. “Western Balkans Regular Economic Report”, World Bank Regular
economic report No.11, Washington D.C. Wooldridge, Jeffrey M. 2002.
Trade, Institutional Change, and Economic Growth”. The American Economic review, 95(3): pp. 546-579.
Acemoglu, Daron, Simon Johnson, and James Robinson. 2005a. “Institutions as a
fundamental cause of long-run growth”. Handbook of economic growth, 1: pp. 385-472.
Aghion, Philippe, and Peter Howitt. 1992. "A model of growth through creative destruction",
Econometrica 60: pp. 323-351.
Auer, Rebecca A. 2013. “Geography, institutions, and the making of comparative development”. Journal of Economic Growth, 18(2): pp. 179-215.
Baltagi, Badi H. 2008. Econometric Analysis of Panel Data (fourth edition). Chichester, UK: John Wiley & Sons.
Bhupatiraju, Samyukta, and Bart Verspagen. 2013. Economic development, growth,
institutions and geography. UNU-MERIT Working Paper Series 2013–56.
Dollar, David, and Aart Kraay. 2003. “Institutions, Trade, and Growth.” Journal of Monetary
Economics, 50(1): pp. 133-162.
Dollar, David. 1992. "Outward-oriented developing economies really do grow more rapidly:
evidence from 95 LDCs, 1976-1985". Economic development and cultural change, 40 (3): pp.
523-544.
Easterly, William and Ross Levine. 2003. “Tropics, germs, and crops: How endowments
influence economic development.” Journal of Monetary Economics, 50(1): 3-39.
Fabrizio, Stefania and Mody Ashoka. 2008. “Breaking the impediments to budgetary reforms: evidence from Europe.” IMF Working Paper No. 08/82, International Monetary Fund, Washington D.C.
Feyrer, James. 2009. “Trade and Income-Exploiting Time Series in Geography.” NBER Working Paper No. 14910. (Cambridge, Massachusetts: NBER).
Fischer, Peter. 2000. "Time dependent flow in equimolar micellar solutions: transient
behaviour of the shear stress and first normal stress difference in shear induced structures
coupled with flow instabilities." Rheologica Acta 39 (3): 234-240.
Fischer, Stanley and Ratna Sahay. 2004. "Transition economies: The role of institutions and
initial conditions." In Calvo Conference, IMF.
Frankel, Jeffrey. A. and David Romer. 1999. “Does Trade Cause Growth?” The American
Economic Review, 89(3): pp. 379-399.
Glaeser, Edward L., Rafael LaPorta, Florencio López-de-Silanes, and Andrei Shleifer. 2004.
“Do institutions cause growth?”. Journal of Economic growth, 9: 271-303.
Groot, Henri de, Gert-Jan Linders, and Piet Rietveld. 2005. “Institutions, governance and
international trade: Opening the Black Box of OECD and GDP per Capita Effects in Gravity
Equations”, IATSS Research, 29 (2): pp. 22-29
Grossman, Gene M., and Elhanan Helpman. 1991. "Quality ladders in the theory of
growth." The Review of Economic Studies 58 (1): pp. 43-61.
Grossman, Gene M., and Elhanan Helpman. 1996. "Electoral competition and special interest politics." The Review of Economic Studies 63 (2): pp. 265-286.
Henn, Christian, Papageorgiou, Chris, and Nikola Spatafora. 2015. "Export Quality in
Advanced and Developing Economies: Evidence from a New Dataset," WTO Staff Working
Papers ERSD-2015-02, World Trade Organization.
John L. Gallup, Andrew D. Mellinger; Jeffrey D. Sachs. 2010. "Geography Datasets",
hdl:1902.1/14429, Harvard Dataverse, V1, UNF:5:SnYwMY387RxYcu3OxaSFgA==
Kaufmann, Daniel, Aart Kraay, and Massimo Mastruzzi. 2010. "The Worldwide Governance
Indicators: Methodology and Analytical Issues". World Bank Policy Research Working Paper
No. 5430 (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1682130).
Krueger, Anne O. 1974. The political economy of the rent-seeking society. American Economic Review 64 : pp. 291-303.
Kucharčuková, Oxana Babecká, Jan Babecký, and Martin Raiser. 2012. “Gravity approach for
modelling international trade in South-Eastern Europe and the Commonwealth of
Independent States: the role of geography, policy and institutions.” Open economies review, 23(2): pp. 277-301.
Moers, Luc. 1999. “How important are institutions for growth in transition countries?”
Tinbergen Institute Discussion Paper 99-004/02.
North, Douglas.1994. “Economic performance through time (Nobel Prize Lecture)”. American Economic Review, 84(3), pp. 359-368.
OECD. 1998. “Open Markets Matter: The Benefits of Trade and Investment Liberalization”. Paris: OECD.
Pejovich, Svetozar. 2008. Law, informal rules and economic performance. Northampton, MA, USA: Edward Elgar Publishing.
Rodrik, Dani, Arvind Subramanian and Francesco Trebbi. 2004. “Institutions rule: The
primacy of institutions over geography and integration in economic development.” Journal of Economic Growth, 9(2): pp. 131-165.
Rodrik, Dani. 2003. “Institutions, integration, and geography: In search of the deep
determinants of economic growth.” In Search of Prosperity: Analytic Country Studies on
Growth. Princeton, NJ: Princeton University Press.
Rodrik, Dani. 2008. One economics, many recipes: globalization, institutions, and economic
growth. Princeton, NJ: Princeton University Press.
Stiglitz, Joseph E. 1998. Towards a new paradigm for development: Strategies, policies, and
processes. Prebisch Lecture, Geneva: UNCTAD
Wei, Shang-Jin. 2000. “Natural openness and good government”, NBER Working Paper 7765, Cambridge.
World Bank Group. 2017. “Western Balkans Regular Economic Report”, World Bank Regular
economic report No.11, Washington D.C. Wooldridge, Jeffrey M. 2002.