EU Accession, Institutional Change, Growth and Human Capital

Abstract

We use the experience of ex-socialist countries to examine the roles of initial institutions at transition, and change in institutions upon joining the EU, on growth. Proxying better institutions with accession to the EU, we show ex-socialist countries that joined the EU boosted their growth after accession. We examine the proximate causes of this boost in growth and find the importance of human capital increased post accession. Neither the amount of human capital change upon accession nor did other economic or political confounders change - these countries had fully opened-up and adopted neo-liberal economic policies, governance restructuring and democracy in early 1990s. Accepting and implementing EU’s regulations and norms in all details upon joining it permits building of transparent networks and improves institutions. These countries had higher than OECD level of human capital at transition. Their skilled labour needed the 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