Reforms and growth in transition: Re-examining the evidence

During transition, a positive correlation between progress in market-oriented reforms and cumulative growth is observed for most countries. However, some less reform-minded countries have grown strongly in recent years. We find empirical evidence to support the robustness of the impact of reforms on growth and we discern important feedback influences from growth to reform. In our econometric results, progress in transition in one period has a significant effect on growth in the subsequent period, which can act as an immediate spur to further reform. We find that the importance of initial conditions as a determinant of growth has declined over time, but that fiscal surpluses remain positively associated with higher growth. Other factors such as output recovery, oil prices, and external growth are found to influence growth to some extent but these do not mitigate the importance of reforms. These results are robust to a dynamic specification that controls for the influence of the current level of output on future growth. Journal of Comparative Economics 34 (3) (2006) 421-445.