Institutions Matter in Transition, But so Do Policies

Governance, Corruption, and Economic Performance

“…The choice of the sample period (i.e., the post-1993 period) used in this paper makes transition economies look somewhat like the nontransition economies used in many large cross-country growth studies and calls for in cluding the same initial conditions in growth regressions as in nontransition economies (i.e., initial per capita GOP and initial life expectancy). In addition, many studies of tran sition economies have found the role of initial conditions to decline over time (e.g., de Melo and others, 1997;Berg and others, 1999;and Havrylyshyn and van Rooden, 2000 ). Therefore, initial per capita GOP and initial life expectancy are good proxies for many types of initial conditions used previously in studies of transition economies.…”

“…The literature on the determinants of inflation in transition economies has generally emphasized cross-country studies of inflation (e.g., Campillo and Miron, 1996), while incorporating features that are unique to transition economies.4 2 In this paper, we follow the lead of Fischer, Sahay, and Vegh (1998), who specify inflation as a function of the choice of the exchange rate regime, fiscal balance, and structural reform indices as compiled by de Melo, Denizer, and Gelb (1996) and EBRD (1999a), and a dummy variable representing trade disruptions 41To the extent that corruption is a symptom of poor institutions, the finding that lower corruption is associated with higher growth is consistent with the findings on the impor tance of institutions in transition economies. See, for example, Brunetti, Kisunko, and Weder (1997); and Havrylyshyn and van Rooden (2000 ).…”

Corruption, Structural Reforms, and Economic Performance in the Transition Economies

“…TIle choice of the sample period (Le., the post-1993 period) used in this paper makes transition economies look somewhat like the nontransition economies used in many large cross-country growth studies and calls for including the same initial conditions in growth regressions as in nontransition economies (i.e., initial per capita GDP and initial life expectancy). In addition, many studies of transition economies have found tile role of initial conditions to decline over time (e.g., de Melo and others, 1997; Berg and others, 1999;and Havrylyshyn and van Rooden, 2000). Therefore, initial per capita GDP and initial life expectnncy are good proxies for many types of initial conditions used previously in studies of transition economies.…”

“…A fixed exchange rate regime is expected to result in lower inflation, as it is often seen as a nominal anchor that imposes discipline on both monetary and fiscal policy (Obstfeld, 1985)44 Structural reforms are expected to result in lower inflation as liberalization of prices, introduction of profitoriented incentives in enterprises, and the development of a private market tend to reduce cost and price distortions, increase competitiveness, and enhance productivity.45 Higher corruption may be associated with higher inflation, because (1) corruption can lead to capital flight and tax evasion, which shrink the tax base, thereby increasing government's desire to resort to seigniorage (AI-Marhubi, 2000); (2) businesses may respond to corrurotion by going underground, thereby increasing reliance on inflation tax (Al-Marhubi, 2000); 6 and (3) high and variable inflation can increase information problems in a principal-agent framework (Braun and di Tella, 2000)47 Higher deficits are expected to be associated with higher 42 To the extent that corruption is a symptom of poor institutions, the finding tbat lower corruption is associated with higher growth is consistent with the findings on the importance of institutions in transition economies. See, for example, Brunetti, Kiswuw, and Weder (1997);and Havrylyshyn and van Rooden (2000).…”

Policy Interdependence During Economic Transition: The Case of Slovakia 1999-2000

“…A recent comparative study of the three Baltic States (OECD, 2000b) concluded that it was more important to get the links right rather than pushing reform in any single area. These links should also incorporate institutional development (Havrylyshyn and van Rooden, 2000).…”