Back Matter

Appendix I. Sample, Data Definition, and Sources

List of Countries

The global sample consists of the following 139 countries during 1983–2006:

CIS (12): Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, the Kyrgyz Republic, Moldova, Mongolia, Russia, Tajikistan, Ukraine, and Uzbekistan.

Baltics (3): Estonia, Latvia, and Lithuania.

CE (5): Czech Republic, Hungary, Poland, Slovak Republic, and Slovenia.

SEE (7): Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Macedonia, Romania, and Serbia.

OECD (21): Australia, Austria, Canada, Cyprus, Denmark, Finland, France, Germany, Greece, Ireland, Island, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, United Kingdom, and the United States.

Sub-Saharan Africa (35): Angola, Benin, Botswana, Burkina Faso, Cameroon, Central African Republic, Comoros, Djibouti, Eritrea, Ethiopia, Ghana, Gabon, Guinea, Gambia, Guinea-Bissau, Ivory Coast, Kenya, Lesotho, Madagascar, Malawi, Mali, Mauritius, Mozambique, Namibia, Niger, Nigeria, Rwanda, Senegal, Sierra Leone, South Africa, Sudan, Suriname, Swaziland, Togo, and Tanzania.

Latin America and the Caribbean (24): Argentina, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominica, Dominican Republic, Ecuador, El-Salvador, Guatemala, Guyana, Haiti, Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Trinidad and Tobago, Uruguay, and Venezuela.

Middle East and North Africa (18): Algeria, Egypt, Iran, Israel, Jordan, Lebanon, Malta, Morocco, Oman, Pakistan, Qatar, Tunisia, Turkey, Yemen, Kuwait, Saudi Arabia, Syria, and the UAE.

South and East Asia (14): Bangladesh, Cambodia, China, Hong Kong, India, Indonesia, Korea, Malaysia, Nepal, the Philippines, Singapore, Sri-Lanka, Thailand, and Vietnam.

The transition sample includes the CIS, Baltics, CE, and SEE.

Sample period

Annual and period average data were used. The transition sample is divided into three sub periods: 1991–95, 1996–2000, and 2001–06. The global sample is divided into five sub periods: 1981–85, 1986–90, 1991–95, 1996–2000, and 2001–06. The resulting information was unbalanced because of data limitations for some countries.

Definition and Sources of data

The data sources used are the IMF’s World Economic Outlook (WEO), the United Nations Economic Commission for Europe’s (UNECE) and the World Bank’s databases.

  • Per capita growth (dependent variable): Per capita real GDP growth rate calculated from national currencies in constant prices. Source: WEO.

  • Convergence as measured by the initial income per capita in 1995 PPP-adjusted U.S. dollars). Source: World Bank.

  • Investment

    • Gross fixed capital formation as a percent of GDP. Source: WEO and UNECE.

    • Relative price of investment, which is calculated as the ratio of the investment price deflator to the GDP deflator, both of which are taken from Penn World Tables (PWT) Version 6.1 (http://pwt.econ.upenn.edu/).

  • Recovery of lost output for Transition Sample: The real GDP index (1990=100) is used. Source: own calculations based on the annual real GDP growth rates.

  • Recovery of lost output for Global Sample: The following indices are used:

    • 0 if initial real GDP in 1995 was greater than 90 percent of its value in 1990.

    • 0.33 if initial real GDP in 1995 was between 75 and 89 percent of its value in 1990; and

    • 0.66 if initial real GDP in 1995 was between 60 and 74 percent of its value in 1990;

    • 1.0 if initial real GDP in 1995 was less than 60 percent of its value in 1990;

  • Market reform index (only for transition countries): The unweighted average of eight EBRD structural reform indicators—price liberalization, small-scale privatization, large-scale privatization, competition policy, trade liberalization, financial sector reform, governance and enterprise reforms, and infrastructure reform. The EBRD indicators range from 1 to 4.3, where 4.3 indicates that the country’s structural characteristics are comparable to those prevailing on average in market economies, and 1 represents conditions before reform in a centrally planned economy with dominant state ownership of the means of production. The reform indices are not perfect and their assessment is sometimes influenced by the observed macroeconomic performance, which raises the problem of possible endogeneity. Source: EBRD, Transition Reports, various years.

  • Institutional quality (in full sample): Measure the quality of institutions based on the work of Kaufmann and others (from 1996 to 2005) at the World Bank, available at http://www.worldbank.org/wbi/governance/pubs/govmatters4.html. The institutional quality measure is constructed by calculating the simple average of six indicators:

    1. Voice and accountability—focuses on the quality of the political process, civil and private liberties;

    2. Political instability and violence—measures the threat and realization of destabilizing the government or regime by any unlawful means;

    3. Government effectiveness—measures the quality of inputs, mostly of the bureaucracy, and the process by which policy is being formed, including independence of political interference;

    4. Regulatory burden—looks at the quality of the policies and the degree to which they interfere negatively with the operation of the market economy;

    5. Rule of law—estimates respect for the law and the quality of the judiciary and enforcement arms; and

    6. Control of corruption—measures the inclination of people and officials to offer and accept bribes.

    • Each of these indicators is distributed normally, with a mean of zero and a standard deviation of one. This implies that virtually all scores lie between -2.5 and 2.5, with higher scores corresponding to “better” outcomes. Since these six measures are strongly correlated, distinguishing the separate impact of any single concept is problematic.

    • Education: Secondary school enrollment (regardless of age) to the population of the age group that officially corresponds to that level of education. Source: World Bank database. Another alternative would be to use the average years of schooling in the population as compiled by Barro and Lee educational attainment data set (http://post.economics.harvard.edu/faculty/barro/data.html). However, this data set does not cover most of the CIS countries.

    • Ratio of government consumption to GDP. Source: International Financial Statistics (IFS) and IMF WEO database.

    • International openness as measured by the ratio of exports plus imports to GDP. Source: IMF WEO database.

  • Macroeconomic stabilization as measured by overall fiscal balance as a ratio of GDP, and the logarithm of the inflation rate. Source: IMF WEO database.

  • External Conditions

    1. Terms-of-trade shocks: percentage change in the terms of trade index (2000=100). Source: IMF WEO database.

    2. Workers’ Remittances: Is the sum of workers’ remittances, compensation to employees (credit), and current account private transfers (credit) and then divided by GDP. Source: IMF country reports and IMF Balance of Payments Yearbooks.

    3. World cycle period-specific shifts: Time dummy variables. Source: authors’ construction.

  • Raw material exports as share of total exports: UNCTAD.

  • Index measure of ethnic and linguistic fractionalization: Alesina, Alberto, W. Easterly, S. Kurlat, and R. Wacziarg, 2003, “Fractionalization,” Journal of Economic Growth, Vol. 8, pp.

References

  • Alesina, Alberto, W. Easterly, S. Kurlat, and R. Wacziarg, 2003, “Fractionalization,” Journal of Economic Growth, Vol. 8, pp. 15594.

  • Arellano, Manuel and Stephen Bond, 1991, “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,” Review of Economic Studies, Vol. 58 (April), pp. 27797.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Arora, Vivek and Athanasios Vamvakidis, 2004, “How Much Do Trading Partners Matter for Economic Growth?IMF Working Paper 04/24 (Washington: International Monetary Fund).

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Baltagi, B. H., 2001, Econometric Analysis of Panel Data, 2nd ed. (New York).

  • Barro, Robert, 1997, Determinants of Economic Growth: A Cross-Country Empirical Study (Cambridge, Massachusetts: MIT Press).

  • Barro, Robert and Jong-Wha Lee, 2000, “International Data on Educational Attainment: Updates and Implications,” Working Paper 7911, Cambridge, Mass.: National Bureau of Economic Research.

    • Search Google Scholar
    • Export Citation
  • Barro, Robert and Xavier Sala-i-Martin, 2004, Economic Growth, MIT Press, London, England.

  • Beck, Thorsten and Luc Laeven, 2006, “Institution Building and Growth in Transition Economies,” Journal of Economic Growth, Vol. 11, pp. 15786.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Berg, A., E. Borensztein, R. Sahay, and J. Zettelmeyer, 1999, “The Evolution of Output in Transition Economies: Explaining the Difference,” IMF Working Paper, 73/99, (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • BIS, Central bank websites on CIS countries http://www.bis.prg/cbanks.htm

  • Caballero, Ricardo J. and Mohamad Hammour, 1994, “The Cleansing Effect of Recession,” American Economic Review, Vol. 84, No. 5, pp. 135068.

    • Search Google Scholar
    • Export Citation
  • Cerra, V. and S.C. Saxena, 2005, “Growth Dynamics: The Myth of Economic Recovery,” IMF Working Paper 05/147 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Campos, N. F., and F. Coricelli, 2002, “Growth in Transition: What We Know, What We Don’t Know and What We Should,” Journal of Economic Literature, Vol. 40, pp. 793836.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Chami, Ralph, C. Fullenkamp, and S. Jahjah, 2003, “Are Immigrant Remittance Flows a Source of Capital for Development?IMF Working Paper 03/189.

    • Search Google Scholar
    • Export Citation
  • Easterly, William and Ross Levine, 1997, “Africa’s Growth Tragedy: Policies and Ethnic Divisions,” Quarterly Journal of Economics, Vol. 111, pp. 120350.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Easterly, William, Norman Loayza, and Peter Montiel, 1997, “Has Latin America’s Post reform Growth Been Disappointing?Journal of International Economics, Vol. 43 (November), pp. 287311.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Easterly, William, 2005, “National Economic Policies and Economic Growth: A Reappraisal,” Handbook of Economic Growth, P. Aghion and S. Durlauf, eds., (Amsterdam, Netherlands: Elsevier BV).

    • Search Google Scholar
    • Export Citation
  • EBRD, Transition Reports, Various Years.

  • Eicher, Teo S., 1999, “Trade Development and Converging Growth Rates: Dynamic Gains from Trade Reconsidered,” Journal of International Economics, Vol. 48, pp. 17998.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Elson, Anthony, 2006, “What Happened,” Finance and Development, June, Vol. 43, No. 2, (Washington: International Monetary Fund).

  • European Bank for Reconstruction and Development, 2006, Transition Report (London).

  • Falcetti, Elisabetta, Tatiana Lysenko, and Peter Sanfey, 2005, “Reforms and growth in transition: re-examining the evidence,” EBRD Working Paper No. 90.

    • Search Google Scholar
    • Export Citation
  • Fernández-Arias, Eduardo and Peter Montiel, 2001, “Reform and Growth in Latin America: All Pain, No Gain?IMF Staff Papers, Vol. 48, No. 3, pp. 52246.

    • Search Google Scholar
    • Export Citation
  • Fidrmuc, J., 2003, “Economic Reform, Democracy and Growth during Post-Communist Transition,” European Journal of Political Economy, Vol. 19, pp. 583604.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Fisher, Stanley, 1993, “The Role of Macroeconomic Factors in Growth,” Journal of Monetary Economics, Vol. 32, pp. 485512.

  • Fisher, Stanley, and R. Sahay, 2000, “The Transition Economies after Ten Years,” IMF Working Paper No. 00/30, (Washington: International Monetary Fund).

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Giuliano, P. and M. Ruiz-Arranz, 2005, “Remittances, Financial Development, and Growth”, IMF Working Paper, No. WP/05/234, (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Hauk, W.R. Jr. and R. Wacziarg, 2004, “A Monte Carlo Study of Growth Regressions,” mimeo, Stanford University.

  • Haussmann, Ricardo, Lant Pritchett, and Dani Rodrik, 2004, “Growth Accelerations,” National Bureau of Economic Research,.Working Paper 10566, June, Cambridge, Massachusetts.

    • Search Google Scholar
    • Export Citation
  • Havrylyshyn, Oleh and Ron van Rooden, 2003, “Institutions Matter in Transition, But So Do Policies,” Comparative Economic Studies, Vol. 45, pp. 224.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • International Monetary Fund, 2003, World Economic Outlook, April (Washington DC).

  • International Monetary Fund ,2006, World Economic Outlook (Washington DC).

  • Islam, N., 1995, “Growth Empirics: A Panel Data Approach,” Quarterly Journal of Economics, Vol. 110, pp. 112770.

  • Iradian, G., 2003, “Armenia: The Road to Sustained Rapid Growth, Cross-Country Evidence,” IMF Working Paper No. 03/103, (Washington: International Monetary Fund).

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Iradian, G., 2007, “Rapid Growth in Transition Economies,” IMF Working Paper, August 2007, (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Johnson, Simon, Jonathan D. Ostry and Arvind Subramanian, 2006, “Levers for Growth: Policy Lessons from Earlier Bouts of Growth in Developing Countries,” Finance and Development, March, pp. 2832.

    • Search Google Scholar
    • Export Citation
  • Kaufmann, Daniel, Aart Kraay, and Massimo Mastruzzi, 2005, “Governance Matters IV: Governance Indicators for 1996-2004,” World Bank Policy Research Series, No. 3030, Washington, D.C.

    • Search Google Scholar
    • Export Citation
  • Kolodko, G., 2004, “Institutions, Policies, and Growth,” Center of Transition, Integration, and Globalization, Warsaw (www.tiger.edu.pl).

    • Search Google Scholar
    • Export Citation
  • Lawson, C. and H. Wang, 2004, “Economic Transition in Central and Eastern Europe and the former Soviet Union; Which Policies WorkedUniversity of Bath, Department of Economics and International Development, Working Paper.

    • Search Google Scholar
    • Export Citation
  • Mankiw, Gregory, David Romer, and David Weil, 1992, “A Contribution to the Empirics of Economic Growth,” Quarterly Journal of Economics, Vol. 107, pp. 407-37.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • Mendoza, Enrique, 1997, “Terms of Trade Uncertainty and Economic Growth,” Journal of Development Economics, Vol. 54, pp. 32356.

  • Merlevede, B., 2003, “Reform Reversals and Output Growth in Transition,” Economics of Transition, Vol. 11, No. 4, pp. 64967.

  • Mishra, Prachi, 2006, “Emigration and Brain Drain: Evidence From the Caribbean,” IMF Working Paper 06/25.

  • Oomes, Nienke, and Katerina Kalcheva, 2007, “Diagnosing Dutch Disease: Does Russia Have the Symptoms?IMF Working Paper 07/102.

  • Sachs, J.D. and A. M. Warner, 2001, “The Curse of Natural Resources,” European Economic Review, Vol. 45, pp. 82738.

  • Shiells, C., M. Pani, and E. Jafarov, 2005, “Is Russia Still Driving Regional Economic Growth?IMF Working Paper No. 05/192, (International Monetary Fund).

    • Search Google Scholar
    • Export Citation
  • Solow, R., 1957, “A Contribution to the Theory of Economic Growth,” Quarterly Journal of Economics, Vol. 70, pp. 6594.

  • Schadler, S., A. Mody, A. Abiad, and D. Leigh, 2006, “Growth in the Central and Eastern European Countries of the European Union,” IMF Occasional Paper No. 252, International Monetary Fund.

    • Search Google Scholar
    • Export Citation
  • Schumpeter, Joseph, 1950, Capitalism Socialism, and Democracy, George Allen and Unwin Ltd., London, England.

  • Turnovsky, S.J., and P. Chattopadhyay, 2003, “Volatility and Growth in Developing Economies: Some Numerical Results and Empirical Evidence,” Journal of International Economics, Vol. 54, pp. 26795.

    • Crossref
    • Search Google Scholar
    • Export Citation
  • World Bank, 2005, Economic Growth in the 1990s: Learning from a Decade of Reform, The World Bank, Washington, D.C.

  • World Bank, 2006, Doing Business, http://www.doingbusiness.org/

  • World Bank, 2006, Global Economic Prospects, Economic Implications of Remittances, and Migration, Washington D.C.

1

For valuable comments and suggestions, I am grateful to David Owen, Erik De Vrijer, Peter Winglee, and participants in the seminar held at the International Monetary Fund (IMF). Thanks also to Michael Landesmann for useful comments on an earlier version of this paper. Susanne Winkler provided superb research assistance. The views expressed are those of the author and should not be interpreted as those of the IMF. Responsibility for any errors of fact or judgment that remain in this paper rests entirely with the author.

2

The CIS region includes Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, the Kyrgyz Republic, Moldova, Mongolia, Russia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan. Mongolia, which is not a member of the CIS, is included in this group for reasons of geography and similarities in economic structure.

3

Examples of regional conflicts include the war over Nagorno-Karabakh between Armenia and Azerbaijan (1990–94), secessionist pressures in Georgia and Moldova, and the civil war in Tajikistan (1991–97).

4

The EBRD market reform index ranges from 1 to 4.3, where 1 represents conditions before reform in a centrally planned economy with dominant state ownership of the means of production, and 4.3 indicates that the country’s structural characteristics are comparable to those prevailing on average in market economies.

5

Turkmenistan is excluded from the transition sample due to its poor quality of national accounts statistics.

7

The TFP series are calculated in Iradian (2007).

8

There are two main estimation procedures for panel data, fixed, and random effects. In this paper, the fixed effect method is more appropriate. First, the main interest is in measuring differences between countries. Second, in small samples (relatively shorter time span there may be practical problems preventing parameter estimation when the random effect model is applied; this is not the case with the fixed effect model. Also the Hausman specification test confirmed that the fixed effect model is the more appropriate technique for the data used in this paper.

9

Based on Monte Carlo simulations, Hauk and Wacziarg (2004) argue that taking account of all the advantages and limitations of the different estimation procedures, the cross-section OLS estimator that averages data over longer periods might be the most efficient.

12

A high rate of inflation is harmful to growth because it raises the cost of borrowing and thus lowers the rate of capital investment. At the same time, highly variable inflation make it difficult and costly to forecast accurately costs and profits and hence investors and entrepreneurs may be reluctant to undertake new projects. Likewise, given that financial resources in the form of domestic savings and loans are limited, a larger fiscal deficit will mean that more of those limited resources must be devoted to financing the budget defect. Fewer resources will thus be available for private sector investment.

13

The reform indices are not perfect and their assessment is sometimes influenced by the observed macroeconomic performance, which raises the problem of possible endogeneity.

14

See Mendoza and Enrique (1997) and Eicher (1999).

15

See Fischer (1993) and Barro and Sala-i-Martin (2004).

16

Wage income earned abroad has become a sizeable component in the balance of payments of several CIS and south-east European economies. Income earned abroad by short-term workers (residents for less than a year) appears in the balance of payments as workers’ compensation under the income account while income earned abroad by migrants (foreign residence for over a year) appears as workers’ remittances under the current account private transfers.

17

The EBRD reform score and investment are highly correlated with institutional quality and are not used in the same regression equations.

18

The unfavorable external environment in 1980–82, is reflected in higher international interest rates, higher oil prices, and growth slowdown in industrial countries.

19

Beck and Laeven, 2006, show that countries that had been longer under socialist government and rely more on natural resources experienced less institution building during the transition process. This finding is robust to using different indicators of institutions building and controlling for other factors that might be associated with institution building.

20

Easterly and Levine (1997) have shown that per capita GDP growth is inversely related to ethno-linguistic fractionalization in a large sample of countries. In particular, they argued that much of Africa’s growth failure is due to ethnic conflict, partly as a result of absurd borders left by former colonizers. Alesina and others (2003) conclude that ethnic and linguistic fractionalization variables, more so than religious ones, are likely to be important determinants of economic success, both in terms of output and quality of institutions.

21

See Elson, 2006, “What Happened,” Finance and Development, June, Vol. 43, Number 2.

Rapid Growth in the CIS: Panel Regression Approach
Author: Mr. Garbis Iradian