Institutional Determinants of Investment in Transition Economies

28 Pages Posted: 19 Mar 2012 Last revised: 11 Jul 2012

See all articles by Vinh Dang

Vinh Dang

Department of Economics and Finance, Brunel University

Date Written: March 17, 2012

Abstract

Investment has been found to be a significant determinant of growth. This paper analyses the effects of institutions and transition progress on investment rates of transition economies since the collapse of the Socialist Bloc. Political institution is measured by the Freedom House’s Political Rights and Civil Liberties indexes; economic institution is proxied by the Index of Economic Freedom compiled by the Heritage Foundation; and transition progress is documented by the European Bank for Reconstruction and Development’s transition index. Panel data estimation techniques are applied and the results show that institutions and transition progress have expected and significant effect on investment rates of transition economies. However, it is the progress in all aspects of economic freedom that matters; just some individual economic freedom measures are significant marginally. Besides, as conditioning variables, growth, saving and financial development (liquid liabilities as % of GDP) are also found to have significant and positive effect on investment in transition economies. This paper highlights the indirect effect of institutions on economic growth via investment.

Keywords: institutions, liberalisation, investment, transition economies

JEL Classification: O16, P33, P36

Suggested Citation

Dang, Vinh, Institutional Determinants of Investment in Transition Economies (March 17, 2012). Available at SSRN: https://ssrn.com/abstract=2025328 or http://dx.doi.org/10.2139/ssrn.2025328

Vinh Dang (Contact Author)

Department of Economics and Finance, Brunel University ( email )

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom

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