UCL School of Slavonic and East European Studies, University College London, 7th Annual International Postgraduate Conference

Inclusion Exclusion

16-18th February 2006

Thursday 16 February 4:30 – 6:00: Panel C1: Global Integration and Development

Jong-Kuy Lee (UCL - SSEES): ‘Determinants of economic growth in transition economies’

Post-communist countries have displayed diverse patterns of recession, recovery, and growth over 15 years of transition. Using theoretical literature, accumulating data, non-quantified studies of transition economies, and ket data sets, the present research undertakes thorough, theoretically and econometrically grounded comparison of transition economies. Adapting neoclassical and endogenous theories, and more recent empirical studies of economic transition, the research assesses econometrically how far observed outcomes are attributable to differences in initial condition, different inputs of production, and diverse productivity.

The neoclassical model predicted rapid growth for poorer countries due to high returns to scarce capital. More recent endogenous models attribute different growth rates to levels of human capital, which affect rates of convergence toward developed, high-growth conditions.

However, empirical analysis reveals that, unlike developed economies, transition economies fail to conform to those medium-term variations in growth rate due levels of physical or human capital. Several more recent alternative theories advance the productivity, which includes the concepts of technology, institutions, and efficiency, as major growth determinants in these cases.

Developed economies have similar level of technology and their systems, such as institutions and efficiency, have already been matured. Thus, inputs of production are relatively important factors determining different growth rates among the countries. By contrast, variations of determinants of economic growth in developing countries are very diverse, depending on the situation of each country. Amongst them, in the case of transition economies, which had better technology than other market-based developing countries with the similar level of income, improvement in the quality of institutions and efficiency might be decisive factors determining the differences in growth rates.

Prompted by this observation, my research examines this full range of theoretical alternatives using econometric techniques on cross-country and panel data. While some studies in the 1990s gave empirical assessments of theories of economic growth, their analyses often insufficiently differentiated distinct types of economies. Also, accumulating data in transition economies now renders much needed comparative econometric studies more feasible. Two major, independently derived data sets (World Bank and Summers-Heston) can facilitate comparing initial endowments and growth paths of 25 transition countries with those of 73 market economies, in the 1989-2003 period, through cross-country regression and panel (GMM) analysis.

The research thus aims to enhance our understanding of growth patterns in reforming economies, both deepening theoretical insights and yielding practical policy suggestions. In so doing, it will also add to our tested theoretical understanding of economic growth in general.