Defying the Odds: Initial Conditions, Reforms and Growth in the First Decade of Transition

EBRD Working Paper No. 55

30 Pages Posted: 20 Jun 2001

See all articles by Elisabetta Falcetti

Elisabetta Falcetti

European Bank for Reconstruction and Development (EBRD)

Martin Raiser

European Bank for Reconstruction and Development

Peter Sanfey

European Bank for Reconstruction and Development (EBRD)

Date Written: May 2001

Abstract

This paper investigates the relative importance of three sets of factors - initial conditions, macroeconomic stabilisation and structural reforms - as determinants of growth in transition economies during the first ten years. We ask whether countries that defied the odds, given by their initial conditions and the "typical" time pattern of transition, reaped benefits in terms of higher growth rates. For the period as a whole, we find that initial conditions dominate the impact of reforms. However, a panel data estimation indicates that the effects of initial conditions on growth diminishes steadily over time. Moreover, once we control for differences in starting points, stabilisation measures and time trends, the degree of market liberalisation and privatisation has a robust positive effect on growth. This impact comes with a lag of one year, whereas higher growth feeds back into the level of reform contemporaneously.

Keywords: Transition, initial conditions, structural reforms, stabilisation

JEL Classification: O57, P24

Suggested Citation

Falcetti, Elisabetta and Raiser, Martin and Sanfey, Peter, Defying the Odds: Initial Conditions, Reforms and Growth in the First Decade of Transition (May 2001). EBRD Working Paper No. 55, Available at SSRN: https://ssrn.com/abstract=270628 or http://dx.doi.org/10.2139/ssrn.270628

Elisabetta Falcetti

European Bank for Reconstruction and Development (EBRD) ( email )

One Exchange Square
London, EC2A 2EH
United Kingdom

Martin Raiser (Contact Author)

European Bank for Reconstruction and Development ( email )

One Exchange Square
London EC2A 2JN
United Kingdom
+44 20 7338 7231 (Phone)
+44 20 7338 6110 (Fax)

Peter Sanfey

European Bank for Reconstruction and Development (EBRD) ( email )

One Exchange Square
London, EC2A 2JN
United Kingdom
+44 20 7338 6227 (Phone)
+44 20 7338 6110 (Fax)

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