Working Paper: NBER ID: w11992
Authors: Sergio Godoy; Joseph E. Stiglitz
Abstract: This paper examines alternative hypotheses concerning the determinants of success in the transition from Communism to the market. In particular, we look at whether speed of privatization, legal institutions or initial conditions are more important in explaining the growth of the transition countries in the years since the end of the Cold War. In the mid 90s a large empirical literature attempted to relate growth to policy measures. A standard conclusion of this literature was the faster countries privatized and liberalized, the better. We now have more data, so we can check whether these conclusions are still valid six years later. Furthermore, much of the earlier work was flawed since it did not adequately treat problems of endogeneity, confused issues of speed and level of privatization, and did not face up to the problems of multicollinearity. Our results suggest that, contrary to the earlier literature, the speed of privatization is negatively associated with growth, but is confirms the result of the few earlier studies that have found that legal institutions are very important. Other variables, which seemed to play a large role in the earlier literature, appear to have at most a marginal positive effect.
Keywords: No keywords provided
JEL Codes: P2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Speed of privatization (L33) | Economic growth (O49) |
| Legal institutions (D02) | Economic growth (O49) |
| Initial conditions (Y20) | Speed of privatization (L33) |
| Initial conditions (Y20) | Economic growth (O49) |