Institutional Barriers in the Transition to Market: Examining Performance and Divergence in Transition Economies PDF
Preview Institutional Barriers in the Transition to Market: Examining Performance and Divergence in Transition Economies
Studies in Economic Transition General Editors: Jens Hölscher, Reader in Economics, University of Brighton; and Horst Tomann, Professor of Economics, Free University Berlin This series has been established in response to a growing demand for a greater understanding of the transformation of economic systems. It brings together theoretical and empirical studies on economic transition and economic devel- opment. The post-communist transition from planned to market economies is one of the main areas of applied theory because in this field the most dramatic examples of change and economic dynamics can be found. The series aims to contribute to the understanding of specific major economic changes as well as to advance the theory of economic development. The implications of economic policy will be a major point of focus. Titles include: Will Bartlett, Sanja Malekovic and Vassilis Monastiriotis (editors) DECENTRALISATION AND LOCAL DEVELOPMENT IN SOUTH-EAST EUROPE Tilman Bruk and Hartmut Lehmann (editors) IN THE GRIP OF TRANSITION Economic and Social Consequences of Restructuring in Russia and Ukraine Lucian Cernat EUROPEANIZATION, VARIETIES OF CAPITALISM AND ECONOMIC PERFORMANCE IN CENTRAL AND EASTERN EUROPE Bruno Dallago (editor) TRANSFORMATION AND EUROPEAN INTEGRATION The Local Dimension Bruno Dallago and Ichiro Iwasaki (editors) CORPORATE RESTRUCTURING AND GOVERNANCE IN TRANSITION ECONOMIES Hella Engerer PRIVATIZATION AND ITS LIMITS IN CENTRAL AND EASTERN EUROPE Property Rights in Transition Saul Estrin, Grzegorz W. Kolodko and Milica Uvalic (editors) TRANSITION AND BEYOND Christopher Hartwell INSTITUTIONAL BARRIERS IN THE TRANSITION TO MARKET Examining Performance and Divergence in Transition Economies Iraj Hoshi, Paul J.J. Welfens and Anna Wziatek-Kubiak (editors) INDUSTRIAL COMPETITIVENESS AND RESTRUCTURING IN ENLARGED EUROPE How Accession Countries Catch Up and Integrate in the European Union Mihaela Keleman and Monika Kostera (editors) CRITICAL MANAGEMENT RESEARCH IN EASTERN EUROPE Managing the Transition David Lane (editor) THE TRANSFORMATION OF STATE SOCIALISM System Change, Capitalism, or Something Else? David Lane and Martin Myant (editors) VARIETIES OF CAPITALISM IN POST-COMMUNIST COUNTRIES Jens Lowitzsch FINANCIAL PARTICIPATION OF EMPLOYEES IN THE EU-27 Sönke Maatsch CENTRAL AND EAST EUROPEAN MIGRANTS’ CONTRIBUTIONS TO SOCIAL PROTECTION Milan Nikolić MONETARY POLICY IN TRANSITION Inflation Nexus Money Supply in Postcommunist Russia Julie Pellegrin THE POLITICAL ECONOMY OF COMPETITIVENESS IN AN ENLARGED EUROPE Johannes Stephan (editor) THE TECHNOLOGICAL ROLE OF INWARD FOREIGN DIRECT INVESTMENT IN CENTRAL EAST EUROPE Horst Tomann MONETARY INTEGRATION IN EUROPE Vera Trappmann FALLEN HEROES IN GLOBAL CAPITALISM Workers and the Restructuring of the Polish Steel Industry Hans van Zon RUSSIA’S DEVELOPMENT PROBLEM The Cult of Power The full list of titles available is on the website: www.palgrave.com/economics/set.asp Studies in Economic Transition Series Standing Order ISBN 978–0–333–73353–0 (outside North America only) You can receive future titles in this series as they are published by placing a standing order. Please contact your bookseller or, in case of difficulty, write to us at the address below with your name and address, the title of the series and the ISBN quoted above. Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke, Hampshire RG21 6XS, England Institutional Barriers in the Transition to Market Examining Performance and Divergence in Transition Economies Christopher A. Hartwell © Christopher A. Hartwell 2013 Foreword © Leszek Balcerowicz 2013 Softcover reprint of the hardcover 1st edition 2013 978-1-137-32370-5 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6–10 Kirby Street, London EC1N 8TS. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2013 by PALGRAVE MACMILLAN Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited, registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS. Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010. Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world. Palgrave® and Macmillan® are registered trademarks in the United States, the United Kingdom, Europe and other countries ISBN 978-1-349-45874-5 ISBN 978-1-137-32371-2 (eBook) DOI10.1057/9781137323712 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin. A catalogue record for this book is available from the British Library. A catalog record for this book is available from the Library of Congress. 10 9 8 7 6 5 4 3 2 1 22 21 20 19 18 17 16 15 14 13 This book is dedicated to all of those who have ever wished me success in my future professional endeavors. As you can see, it apparently worked. Contents List of Tables ix List of Figures xii Foreword xiii Acknowledgments xvi 1 Introduction 1 The challenge: economics literature and the explanation of transition 3 2 Defining and Measuring Institutions 13 Institutional systems 17 Types of institutions within an institutional system 19 Applying the taxonomy in transition 21 Political institutions 22 Economic institutions 32 How to measure institutions? Indicators and proxies 42 3 Two Decades of Transition and Institutional Research: A Review 47 Transition economics and explaining 1989–91 50 New institutional economics and its application to transition economies 55 4 Institutions in Transition: Were They Really Neglected? 61 What was “neglected?” And how? 61 Examining the “neglect” argument 65 Institutions before 1989: the market under communism 67 Institutional change in transition 69 The correlation between macroeconomic stabilization and institutional change 77 An econometric analysis of institutional change and economic outcomes in transition 84 Conclusions 111 5 The Relative Importance of Institutions in Economic Outcomes in Transition 114 Policies versus institutions: which is which? 114 vii viii Contents Policies versus institutions: which are more important? 118 Adding a third dimension: a new model of growth in transition 122 Instrumenting for personality 146 Conclusions 155 6 The Relative Importance of Different Institutions in Transition 157 Examining institutions in transition 157 Modeling institutional influence 160 Instrumental variables: combating endogeneity 183 Relative influence of institutions: some conclusions 201 7 Conclusion and Policy Recommendations 204 Agenda for further research 208 Data Appendix 211 Notes 217 Bibliography 226 Index 247 List of Tables 1.1 Per capita GDP (in 1990 International Geary-Khamis dollars) over time, 1950 vs. 1980 2 2.1 Institutional indicators 45 3.1 Economic transitions by region and decade 49 4.1 Private sector as share of GDP and employment in the Soviet Union and Central/Eastern Europe 68 4.2 C hanges in political institutions over transition 70 4.3 C hanges in selected economic institutional indicators 73 4.4 Pair-wise correlations between macroeconomic stabilization and institutional change 78 4.5 Correlations between political and economic institutional change 85 4.6 Components of the initial conditions clusters 92 4.7 G LS and GMM regressions with autoregressive component, distance of political institutions vs. GDP 94 4.8 G LS and GMM regressions with autoregressive component, distance of political institutions vs. household consumption 95 4.9 GLS and GMM regressions with autoregressive component, distance of political institutions vs. gross savings 96 4.10 GLS and GMM regressions with autoregressive component, distance of political institutions vs. net FDI 97 4.11 G LS and GMM regressions with autoregressive component, distance of economic institutions vs. GDP 100 4.12 G LS and GMM regressions with autoregressive component, distance of economic institutions vs. household consumption 102 4.13 G LS and GMM regressions with autoregressive component, distance of economic institutions vs. gross savings 104 4.14 G LS and GMM regressions with autoregressive component, distance of economic institutions vs. net FDI 108 4.15 A PARCH approach to property rights evolution vs. GDP 110 5.1 Type I vs. type II policies 116 5.2 Principal component institutional groups 128 ix x List of Tables 5.3 Results of principal component analysis across institutional groups 129 5.4 PCA values vs. Monte Carlo simulation for parallel analysis 131 5.5 GLS and GMM regressions, policies vs. institutions vs. personality, GDP per capita 134 5.6 GLS and GMM regressions, policies vs. institutions vs. personality, change in household consumption 136 5.7 GLS and GMM regressions, policies vs. institutions vs. personality, gross savings 137 5.8 GLS and GMM regressions, policies vs. institutions vs. personality, change in net FDI 138 5.9 GLS and GMM regressions, policies vs. institutions vs. personality, GDP per capita, PCLOINC group 140 5.10 G LS and GMM regressions, policies vs. institutions vs. personality, household consumption, PCLOINC group 141 5.11 G LS regressions, policies vs. institutions vs. personality, gross savings, PCLOINC group 143 5.12 GLS and GMM regressions, policies vs. institutions vs. personality, change in net FDI, PCLOINC group 144 5.13 G LS and GMM regressions, policies vs. institutions vs. personality, GDP per capita, PCBF group 145 5.14 G LS regressions, policies vs. institutions vs. personality, household consumption, PCBF group 147 5.15 G LS and GMM regressions, policies vs. institutions vs. personality, gross savings, PCBF group 148 5.16 G LS and GMM regressions, policies vs. institutions vs. personality, change in net FDI, PCBF group 149 5.17 C ross-correlations among policy, personality, and institutional variables 153 5.18 G LS and GMM IV results, GDP per capita 154 5.19 G LS and GMM IV results, household consumption 154 5.20 W eak identification tests for GMM IV, GDP per capita, and household consumption, PCEBRDCM component 154 5.21 C ross-correlations among policy, personality, and institutional variables, PCBF cluster 155 5.22 G LS and GMM IV results, PCBF cluster, GDP per capita and household consumption 156 5.23 W eak identification tests for GMM IV, GDP per capita and household consumption, PCBF component 156 6.1 Significant institutions by metric of success 161
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