Table Of ContentStudies in Economic Transition
General Editors: Jens Hölscher, Reader in Economics, University of Brighton; and
Horst Tomann, Professor of Economics, Free University Berlin
This series has been established in response to a growing demand for a greater
understanding of the transformation of economic systems. It brings together
theoretical and empirical studies on economic transition and economic devel-
opment. The post-communist transition from planned to market economies is
one of the main areas of applied theory because in this field the most dramatic
examples of change and economic dynamics can be found. The series aims to
contribute to the understanding of specific major economic changes as well as
to advance the theory of economic development. The implications of economic
policy will be a major point of focus.
Titles include:
Will Bartlett, Sanja Malekovic and Vassilis Monastiriotis (editors)
DECENTRALISATION AND LOCAL DEVELOPMENT IN SOUTH-EAST EUROPE
Tilman Bruk and Hartmut Lehmann (editors)
IN THE GRIP OF TRANSITION
Economic and Social Consequences of Restructuring in Russia and Ukraine
Lucian Cernat
EUROPEANIZATION, VARIETIES OF CAPITALISM AND ECONOMIC
PERFORMANCE IN CENTRAL AND EASTERN EUROPE
Bruno Dallago (editor)
TRANSFORMATION AND EUROPEAN INTEGRATION
The Local Dimension
Bruno Dallago and Ichiro Iwasaki (editors)
CORPORATE RESTRUCTURING AND GOVERNANCE IN TRANSITION
ECONOMIES
Hella Engerer
PRIVATIZATION AND ITS LIMITS IN CENTRAL AND EASTERN EUROPE
Property Rights in Transition
Saul Estrin, Grzegorz W. Kolodko and Milica Uvalic (editors)
TRANSITION AND BEYOND
Christopher Hartwell
INSTITUTIONAL BARRIERS IN THE TRANSITION TO MARKET
Examining Performance and Divergence in Transition Economies
Iraj Hoshi, Paul J.J. Welfens and Anna Wziatek-Kubiak (editors)
INDUSTRIAL COMPETITIVENESS AND RESTRUCTURING IN ENLARGED
EUROPE
How Accession Countries Catch Up and Integrate in the European Union
Mihaela Keleman and Monika Kostera (editors)
CRITICAL MANAGEMENT RESEARCH IN EASTERN EUROPE
Managing the Transition
David Lane (editor)
THE TRANSFORMATION OF STATE SOCIALISM
System Change, Capitalism, or Something Else?
David Lane and Martin Myant (editors)
VARIETIES OF CAPITALISM IN POST-COMMUNIST COUNTRIES
Jens Lowitzsch
FINANCIAL PARTICIPATION OF EMPLOYEES IN THE EU-27
Sönke Maatsch
CENTRAL AND EAST EUROPEAN MIGRANTS’ CONTRIBUTIONS TO SOCIAL
PROTECTION
Milan Nikolić
MONETARY POLICY IN TRANSITION
Inflation Nexus Money Supply in Postcommunist Russia
Julie Pellegrin
THE POLITICAL ECONOMY OF COMPETITIVENESS IN AN ENLARGED
EUROPE
Johannes Stephan (editor)
THE TECHNOLOGICAL ROLE OF INWARD FOREIGN DIRECT INVESTMENT
IN CENTRAL EAST EUROPE
Horst Tomann
MONETARY INTEGRATION IN EUROPE
Vera Trappmann
FALLEN HEROES IN GLOBAL CAPITALISM
Workers and the Restructuring of the Polish Steel Industry
Hans van Zon
RUSSIA’S DEVELOPMENT PROBLEM
The Cult of Power
The full list of titles available is on the website:
www.palgrave.com/economics/set.asp
Studies in Economic Transition
Series Standing Order ISBN 978–0–333–73353–0
(outside North America only)
You can receive future titles in this series as they are published by placing a standing order.
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Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke,
Hampshire RG21 6XS, England
Institutional Barriers in the
Transition to Market
Examining Performance and Divergence in
Transition Economies
Christopher A. Hartwell
© Christopher A. Hartwell 2013
Foreword © Leszek Balcerowicz 2013
Softcover reprint of the hardcover 1st edition 2013 978-1-137-32370-5
All rights reserved. No reproduction, copy or transmission of this
publication may be made without written permission.
No portion of this publication may be reproduced, copied or transmitted
save with written permission or in accordance with the provisions of the
Copyright, Designs and Patents Act 1988, or under the terms of any licence
permitting limited copying issued by the Copyright Licensing Agency,
Saffron House, 6–10 Kirby Street, London EC1N 8TS.
Any person who does any unauthorized act in relation to this publication
may be liable to criminal prosecution and civil claims for damages.
The author has asserted his right to be identified as the author of this work
in accordance with the Copyright, Designs and Patents Act 1988.
First published 2013 by
PALGRAVE MACMILLAN
Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited,
registered in England, company number 785998, of Houndmills, Basingstoke,
Hampshire RG21 6XS.
Palgrave Macmillan in the US is a division of St Martin’s Press LLC,
175 Fifth Avenue, New York, NY 10010.
Palgrave Macmillan is the global academic imprint of the above companies
and has companies and representatives throughout the world.
Palgrave® and Macmillan® are registered trademarks in the United States,
the United Kingdom, Europe and other countries
ISBN 978-1-349-45874-5 ISBN 978-1-137-32371-2 (eBook)
DOI10.1057/9781137323712
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10 9 8 7 6 5 4 3 2 1
22 21 20 19 18 17 16 15 14 13
This book is dedicated to all of those who have ever wished me
success in my future professional endeavors. As you can see, it
apparently worked.
Contents
List of Tables ix
List of Figures xii
Foreword xiii
Acknowledgments xvi
1 Introduction 1
The challenge: economics literature and the
explanation of transition 3
2 Defining and Measuring Institutions 13
Institutional systems 17
Types of institutions within an institutional system 19
Applying the taxonomy in transition 21
Political institutions 22
Economic institutions 32
How to measure institutions? Indicators and proxies 42
3 Two Decades of Transition and Institutional Research:
A Review 47
Transition economics and explaining 1989–91 50
New institutional economics and its application to
transition economies 55
4 Institutions in Transition: Were They Really Neglected? 61
What was “neglected?” And how? 61
Examining the “neglect” argument 65
Institutions before 1989: the market under communism 67
Institutional change in transition 69
The correlation between macroeconomic stabilization
and institutional change 77
An econometric analysis of institutional change and
economic outcomes in transition 84
Conclusions 111
5 The Relative Importance of Institutions in
Economic Outcomes in Transition 114
Policies versus institutions: which is which? 114
vii
viii Contents
Policies versus institutions: which are more important? 118
Adding a third dimension: a new model of
growth in transition 122
Instrumenting for personality 146
Conclusions 155
6 The Relative Importance of Different Institutions
in Transition 157
Examining institutions in transition 157
Modeling institutional influence 160
Instrumental variables: combating endogeneity 183
Relative influence of institutions: some conclusions 201
7 Conclusion and Policy Recommendations 204
Agenda for further research 208
Data Appendix 211
Notes 217
Bibliography 226
Index 247
List of Tables
1.1 Per capita GDP (in 1990 International
Geary-Khamis dollars) over time, 1950 vs. 1980 2
2.1 Institutional indicators 45
3.1 Economic transitions by region and decade 49
4.1 Private sector as share of GDP and employment in
the Soviet Union and Central/Eastern Europe 68
4.2 C hanges in political institutions over transition 70
4.3 C hanges in selected economic institutional indicators 73
4.4 Pair-wise correlations between macroeconomic
stabilization and institutional change 78
4.5 Correlations between political and economic
institutional change 85
4.6 Components of the initial conditions clusters 92
4.7 G LS and GMM regressions with autoregressive
component, distance of political institutions vs. GDP 94
4.8 G LS and GMM regressions with autoregressive
component, distance of political institutions vs.
household consumption 95
4.9 GLS and GMM regressions with autoregressive
component, distance of political institutions
vs. gross savings 96
4.10 GLS and GMM regressions with autoregressive
component, distance of political institutions vs. net FDI 97
4.11 G LS and GMM regressions with autoregressive
component, distance of economic institutions vs. GDP 100
4.12 G LS and GMM regressions with autoregressive
component, distance of economic institutions
vs. household consumption 102
4.13 G LS and GMM regressions with autoregressive component,
distance of economic institutions vs. gross savings 104
4.14 G LS and GMM regressions with autoregressive
component, distance of economic institutions vs. net FDI 108
4.15 A PARCH approach to property rights evolution vs. GDP 110
5.1 Type I vs. type II policies 116
5.2 Principal component institutional groups 128
ix
x List of Tables
5.3 Results of principal component analysis across
institutional groups 129
5.4 PCA values vs. Monte Carlo simulation for parallel analysis 131
5.5 GLS and GMM regressions, policies vs. institutions
vs. personality, GDP per capita 134
5.6 GLS and GMM regressions, policies vs. institutions
vs. personality, change in household consumption 136
5.7 GLS and GMM regressions, policies vs. institutions
vs. personality, gross savings 137
5.8 GLS and GMM regressions, policies vs. institutions
vs. personality, change in net FDI 138
5.9 GLS and GMM regressions, policies vs. institutions
vs. personality, GDP per capita, PCLOINC group 140
5.10 G LS and GMM regressions, policies vs. institutions
vs. personality, household consumption, PCLOINC group 141
5.11 G LS regressions, policies vs. institutions vs. personality,
gross savings, PCLOINC group 143
5.12 GLS and GMM regressions, policies vs. institutions
vs. personality, change in net FDI, PCLOINC group 144
5.13 G LS and GMM regressions, policies vs. institutions
vs. personality, GDP per capita, PCBF group 145
5.14 G LS regressions, policies vs. institutions vs.
personality, household consumption, PCBF group 147
5.15 G LS and GMM regressions, policies vs. institutions
vs. personality, gross savings, PCBF group 148
5.16 G LS and GMM regressions, policies vs. institutions
vs. personality, change in net FDI, PCBF group 149
5.17 C ross-correlations among policy, personality,
and institutional variables 153
5.18 G LS and GMM IV results, GDP per capita 154
5.19 G LS and GMM IV results, household consumption 154
5.20 W eak identification tests for GMM IV, GDP per capita,
and household consumption, PCEBRDCM component 154
5.21 C ross-correlations among policy, personality,
and institutional variables, PCBF cluster 155
5.22 G LS and GMM IV results, PCBF cluster, GDP per capita
and household consumption 156
5.23 W eak identification tests for GMM IV, GDP per capita
and household consumption, PCBF component 156
6.1 Significant institutions by metric of success 161
