EU Accession, Institutional Change, Growth and Human Capital

Abstract

We use the experience of ex-socialist countries to examine the roles of initial institutions, and change in institutions upon joining the EU, on growth. Their growth boosted after accession, and human capital was its proximate cause. Communism’s collapse at transition created poor institutions that permitted self-serving behavior of old socialist elite and of new opaque business networks to emerge to exploit the complex environment. Accepting and implementing EU’s regulations and norms in all details puts an end such behavior and improves institutions. Skilled labor with higher than OECD level of human capital at transition needed right institutions to create value it was capable of.

Keywords: initial institutional conditions, opaque versus transparent business networks, “old” vs. “new” ex-socialist countries, proximate factors for growth,

JEL Classification: I25, J24, L14, O43, P27