Mind the break! Accounting for changing patterns of growth during transition

Abstract

We argue that econometric analyses of growth in post-communist countries are vulnerable to structural breaks across time and/or countries. We demonstrate this by identifying structural breaks in growth for 25 countries and over 18 years. The method we use allows identification of structural breaks at a-priori unknown points in space or time. The only prior assumption is that breaks occur in relation to progress in implementing market-oriented reforms. We find robust evidence that the pattern of growth in transition has changed at least three times, yielding four different models of growth associated with different stages of reform. The speed with which individual countries progress through these stages differs considerably.

Economic Freedom as a Driver for Growth in Transition

“…Our results are in line with Fidrmuc and Tichit (2007), who …nd a positive relationship between growth and institutions in their third growth regime. These results also follow the …ndings of Iradian (2007), who concludes that the growth impetus associated with market reforms in CIS has been substantial due to its e¤ect on overall productivity.…”

“…This …nding suggests that these countries obey either the same laws of motion, or at least relatively similar growth models as proposed by Fidrmuc and Tichit (2007). Moreover, this …nding con…rms our initial assumption that, in terms of human capital, post-communist countries were relatively homogenous at the beginning of transition (see also Figure 1 in Appendix B).…”

“…Surprisingly, there is little change in the results when we concentrate on non-oil economies. Next, we use the recalculated index of economic reform as in Fidrmuc and Tichit (2007). For non-oil countries, the economic reform has strong, positive impact on growth.…”

“…Fidrmuc and Tichit (2007) suggest that the data is vulnerable to structural breaks across time and/or countries. They note that the pattern of growth in transition has changed at least twice; yielding three di¤erent models of growth associated with di¤erent stages of reform.…”

Corruption and Economic Freedom Links to Public Finance and Investment in New EU Members

“…Empirické důkazy o přítomnosti těchto strukturálních zlomů v mnoha ekonomických indikátorech těchto zemí dokládají Kočenda (2005), Égert et al (2006) a Fidrmuc a Tichit (2009. Jakýkoli strukturální zlom by změnil odhady představující dlouhodobý vztah mezi závislou a nezávislými proměnnými.…”