The Impact of Institutions on Economic Growth in the Central and Eastern European Countries before and during the Global Economic Crisis

Slaveski, Trajko and Lazarov, Darko (2017) The Impact of Institutions on Economic Growth in the Central and Eastern European Countries before and during the Global Economic Crisis. In: Eurasian Economies in Transition. Cambridge Scholars Publishing, United Kingdom, pp. 108-122. ISBN 1-4438-1266-8

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Abstract

We investigate the influence of institutions on economic growth and the level of income per capita in the CEE region before and during the global economic crisis. We use principal factor component analysis in order to create a more reliable and representative variable to measure the institutional quality in our regression models and to avoid the multi-colinearity, a common statistical weakness of this type of regression model. The results from panel (random and fixed effects) regressions and a GMM dynamic panel regression lead to two contrasting insights. The first regression model shows positive and statistically significant correlation between institutions and economic growth, which would imply that the CEE countries that have created a strong institutional capacity during transition and post-transition period have experienced higher economic growth. The second regression model, which refers to the global economic crisis period, shows a negative influence of institutions on economic growth for the same sample of countries. One explanation for this result might be the fact that countries with a higher degree of integration into the EU were also more vulnerable to the global economic crisis.

Keywords: Economic growth, institutional infrastructure and quality of institutions, OLS panel regression, cross-country data, factor analysis.
JEL Classification: O10, P20

Item Type:	Book Section
Subjects:	Social Sciences > Economics and business
Divisions:	Faculty of Economics
Depositing User:	Darko Lazarov
Date Deposited:	16 Feb 2017 12:23
Last Modified:	16 Feb 2017 12:23
URI:	https://eprints.ugd.edu.mk/id/eprint/17433

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