pasquale tridico ass. professor dept. of economics - university roma tre [email protected]
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Paper to be presented at the University of Perugia, 11 marzo 2013. Socio-economic development in transition economies after the fall of Berlin wall ( Institutions, Human Development and Economic Growth in Transition Economies, Palgrave 2011). Pasquale Tridico - PowerPoint PPT PresentationTRANSCRIPT
Socio-economic development in transition economies after the
fall of Berlin wall
(Institutions, Human Development and Economic Growth in Transition Economies, Palgrave 2011)
Pasquale TridicoAss. Professor
Dept. of Economics - University Roma [email protected]
Paper to be presented at the University of Perugia, 11 marzo 2013
9 November 1989…the main symbol
20 years after, the financial crisis The end of a dream?
Aim of the paper
• To analyze the development paths of Transition economies (i.e. East European Countries and Former Soviet Republics) which experienced a transformation from planned economies to market economies since the fall of Berlin wall in 1989.
• Developing an interconnected analysis of varieties of capitalism which takes into consideration:– Institutional change– Economic growth– Human development
Main hypothesis
• Appropriate (political) institutions and socio-economic variables such as education and health expenditure improve the endowment of people capabilities and lead to better human development.
• In turn, an improvement in human development variables such as education level and life expectancy causes an acceleration process in economic growth.
Institutions human development growth
The reverse of the neoclassical paradigm.
How – methodology
• Econometric exercises to test the causality hp (OLS for 28 countries)
• Following the Varieties of Capitalism literature (Amable, 2003; Jessop 2002; Amoroso 2003; Brenner 2005), countries will be classified by taking into consideration their main macroeconomic characteristics and institutional variables withdrawn from the EBRD such as:– Enterprise and Privatisation – Market & Competition – Trade & Openess – Financial System – Wage Nexus– Social Investments (health and education)
How – methodology (2)
• Following this classification, I found, among former communist economies, 5 types of socio-economic models, i.e.: – competitive capitalist model– corporatist model– dirigiste model– hybrid model– state capitalist model.
I tried to test whether the type of system has an impact on the path of development of the country, considering both economic growth and human development.
Communist states in Eastern Europe and the Soviet Union, 1989
Background and history of transition
• 70s and 80s: Lower performance and inefficiencies. ↑ gap East-West
• 1980s: Gorbachev’s Perestrojka ; Solidarnosc • June 1989 Semi-free election in Poland and first
non-communist gvmnt (Sept. 1989) • October-November 1989 Berlin events• Debate on three routes for transformation:
– Social democracy (third way)– Anglo-Saxon model ASAP (Shock therapy) WC– Eur Continental model Corporatist (German)/ Dirigiste
(French)
Literature and debate…
• Shock therapy vs Gradualism (Sachs 1991; Balcerowicz 1993; Nuti, 1999; Kolodko 1997; Aslund 2001)
• Institutional change, path dependency and evolutionary theory (Matzner and Kregel, 1992, Murrel, 1992; Rodrik, 1999; Lin 2004)
• Sequence of policies and institutions (Stiglitz 1998; Svejnar 2002; Rodrik 2004)
• International integration, Eu integration, IMF and WB constraints; FDI (Mundell 1997, Baldwin 1993; Lavigne, 1999; EBRD)
New consensus Institutions matter
Economic performance and social costs in TEs
• As Kornai said (2006, p.37): the transformation has been unique: 1) it took place peacefully and it was an astonishingly fast process towards western mode of development. 2) it was characterised by deep economic troubles.
successes and failures and ≠among countries.
Gradual therapy: Hungary and Slovenia
-14,0
-12,0
-10,0
-8,0
-6,0
-4,0
-2,0
0,0
2,0
4,0
6,0
8,0 Hungary Slovenia
GDP growth in shock therapy countries 1989-2004
-40,0
-35,0
-30,0
-25,0
-20,0
-15,0
-10,0
-5,0
0,0
5,0
10,0
15,0
Poland Czech RepublicSlovakia LithuaniaLatvia Estonia
Gradualism vs Shock therapy
-20%/-50% cumulate
-15%/-20% cumulate
-15,0
-10,0
-5,0
0,0
5,0
10,0Romania Bulgaria
Delayed reforms/shock therapy/unstable/uncoordinated/corrupted
GDP growth in the Commonwealth of Indipendent States with troubles & conflicts, badly managed, unstable shock (or no) therapy
-25
-20
-15
-10
-5
0
5
10CIS
Delayed unstable with shock (no) therapy
-50%/-60% cumulate twice during 1990s
-60%/-65% cumulate during a long period in 1990s
CEECs, Baltics, Balkans (B&B)
Level 2004
Level 2008
CIS Level 2004
Level 2008
Slovenia 120 136,5 Russia 77 97,0
Czech Republic 108 126,7 Belarus 100 134,5
Estonia 102 113,7 Ukraine 51 60,7
Poland 135 156,5 Kazakhstan 94 124,5
Hungary 115 119,6 Armenia 89 131,3
Lithuania 84 99,8 Turkmenistan 105 160,3
Slovakia 114 142,4 Azerbaijan 71 163,0
Croatia 91 104,8 Georgia 41 73,5
Latvia 83 98,0 Uzbekistan 107 144,8
Albania 129 154,5 Kyrgyzstan 75 94,2
Bosnia & Herzegovin 57 78,9 Moldova 41 57,5
Serbia 60 81,1 Tajikistan 62 91,9
Montenegro 72 101,1 CIS 76 111
Romania 92 113,2 CEECs-5 (the most advanced)
116 131
Macedonia 78 95,7 Other CEECs and B&B
86 107
Bulgaria 84 105,7 CEECs + B&B 96 119
All TEs 94,7 117
Level of real GDP in 2004 and in 2008 (1989=100)
2009. Another 1989?GDP changes in 2009 (in %). Projections for TEs
-15,0
-10,0
-5,0
0,0
5,0
10,0
15,0
With the crisis, Avg GDP 2009 = Avg GDP 1989.
The current economic crisis
• The 20° anniversary similar slump as in 1989-90. • The Baltic States, open and small economies, are
the most hit (Compet. Cap). • Turkmenistan and Uzbekistan, (State Capitalist
economies) have high GDP rates of growth. • Poland (1%), Albania (+1.2%), Azerbaijan (+3%),
Tajikistan and Kyrgyzstan (+0,5%) managed relatively better the recession.
• Average rate of recession in TEs is -5.2%. In 1990, the first year of transition for almost all TEs, recession was about -4.6%
social problems: increase in poverty, inequality, corruption, gender discrimination, unemployment, migration, poverty among farmers and workers, and income divergences between regions within the same country. KOWALIK (2008)
CEECS 5+
CEECS 5- Balkans CIS
Poverty level 2008 (% pop with $4 day)
13,8 27,2 25,2 52,4
Gini coefficient 2008 30,2 32,2 33,0 35,0 life expectancy in years, 2008 73,6 70,8 72,2 66,9 Voice & Accountability avg 00-08
1,04 0,84 0,10 -0,94
Political Stability avg 00-08 0,78 0,64 -0,49 -0,59 Freedom index 2000-08 3,0 3,0 2,5 1,4 Unemployment rate 08 14,8 11,0 22,0 6,4
Social & political problems
Freedom house (Political rights and Civil liberties) 2008
Free (Democracies) Partly Free (Defective democracies/Semi-
authoritarian regimes)
Not Free (Authoritarian regimes)
Czech Republic Estonia Hungary Lithuania Poland Slovakia Slovenia Latvia Bulgaria Croatia Romania Serbia
Albania Macedonia Montenegro Bosnia-Herzegovina Georgia Moldova Kyrgykistan ArmeniaUkraine
Azerbaijan Kazakhstan RussiaTajikistan Belarus Turkmenistan Uzbekistan
13 countries 8 countries 7 countries
HDI 2008 0,859 0,776 0,757
Per capita GDP in ppp 2008
15284 5563 6795
Russia
Russia is not an electoral democracy.
In the presidential election of March 2008, state dominance of the media was on full display, debate was absent, and incumbent Vladimir Putin was able to pass the office to his handpicked successor, Dmitry Medvedev. A similar issue in 2012
Vladimir Putin &Dmitry Medvedev
Source: Freedom House 2009
Autocracts: ruling presidents
• Tajikistan: President Emomali Rahmon (Rakhmonov), 1994-present
• Kazakhstan: President Nazarbayev, 1990-present• Azerbaijan: President Heydar Aliyev, 1993-2003 (died);
President Ilham Aliyev, 2003-present• Kyrgyzstan: President Akayev, 1991-2005 (resigned);
President Bakiyev 2005-present and civil war in 2009-10• Uzbekistan: President Karimov, 1991-present• Turkmenistan: President Saparmurat Niyazov, 1992-2006
(died); President Berdymukhammedov, 2006-present• Belarus: Lukashenko• Ukraine: Yanukovich
Institutions matter, but which ones?
• institutions and development: EBRD, WB and Freedom House indicators are used.
• political institutions such as Freedom index (political rights and civil liberties); and Voice&Accountability index associated with socio-economic variables such as education and health expenditure lead to human development, which in turn improves GDP.
EBRD Market economy institutions matter?
• EBRD indexes rank between 1 and 4+. These indexes concern the following variables: – Enterprise restructuring, – Small and Large Scale Privatisation, – Price liberalisation, – Foreign Trade, – Competition, – Banking and Financial Institutions – Infrastructures.
An interesting paradox…
GDP level 1989=100 vs EBRD indexes
Turkmenistan (160) Slovenia (136) Belarus (134) Czech Rep (126) Uzbekistan (144) Poland (156) Azerbaijan (163) Hungary (124)
GDP level 2009 T B U A S C P H
Average EBRD indexes ( from 1 to 4,25)
Albania
Armenia
Azerbajan
Belarus
Bosnia-Herz
BulgariaCroatia
Czech Rep
Estonia
Georgia
Hungary
Kazakhstan
Kyrgyz Rep
LatviaLithuania
Macedonia
Moldova
Montenegro
Poland
Romania
Russia
Serbia
SlovakSlovenia
Tajikistan
Turkmenistan
Ukraine
Uzbekistan
-20
24
68
grow
th_8
9_09
1.5 2 2.5 3 3.5 4ebrd_ind_avg_09
Scatter EBRD index 2009 and GDP growth 1989-2009
An interesting paradox: 3 groups of countries
1. the most advanced countries in terms of EBRD index, having also the highest levels of GDP, considering 100 the level of GDP in 1989.
2. countries which never started a process of reforms or are very slow reformers with a relatively high GDP level
The third group as in a trap
3.Between Azerbaijan (A) and Slovenia (S) on the horizontal axis, are all the countries with low-to middle level of reforms. These countries are also characterised by low-to-middle GDP levels.
GDP growth, among TEs, is not connected with market economy reforms, which are the ones suggested by EBRD.
This is confirmed by a simple regression modelGDP (cumulative growth) vs EBRD indexes
Model: OLS. Obs: 28;Dependent variable: level of GDP in 2009 (1989=100)
Coef. Std. Err. P>t
Ebrd index 2009
-5.211364 9.338431 0.582
cons 128.4521 28.42034 0.000
R-squared 0.0118; Adj R-squared -0.0262
Prob > F = 0.31
Varieties of capitalism• EBRD institutions are not correlate with growth.
What about the type of socio-economic model?
• Amoroso (2003) and Jessop (2002), identified 4 types of economic systems, such as the Anglo-Saxon model, the Corporatist model, the Dirigiste model, and the Social-Democratic model. Plus Socialist Markets
• Amable (2003) found similar stories, with 5 types of capitalisms, taking into consideration 5 institutional forms (competition, wage nexus, financial sector, social protection and education)
My contribution for TEs (28 c.)• Competitive capitalism
• Corporatist capitalism
• Dirigiste capitalism
• Hybrid capitalism
• State capitalism
My contribution for TEsEnterprise and Market & Competition
Trade & Openess
Financial sector
Wage and Social Inv.
Private Sect
Subsidies f
Price administ
fdico.
trade
Tarif
Fore bank
StateBanks
Stok mkt
Wagregul
Eduhealt
Competitive capit
++ _ _ _ _ _ + _ + _ + _ _ _
_ +
Corporative capit
+ _ + _ + _ + + ++
Dirigiste capit
+ _ ++ ++ _ + ++ _ +
Hybrid capit
_ +
State capit
_ _ ++
++ _ + ++ _ _ + ++
State Capitalism
Hybrid Capitalism
Dirigiste Capitalism
Corporative Capitalism
Competitive Capitalism
Turkmenistan Belarus Uzbekistan
Romania Bulgaria Bosnia Herzegow. With dirigiste tendency Ukraine With dirigiste tendency
Azerbajan Kyrgyz Rep Moldova Russia Tajikistan Montenegro with corpo. tendency Serbia With corporative tendency
Hungary Slovenia Croatia with compe. tendency Macedonia with compe. tendency Czech Rep with compe. tendency Poland with hybrid tendency
Estonia Slovak Albania with dirigiste tendency Armenia with dirigiste tendency Georgia with dirigiste tendency Kazakhstan with dirigiste tendency Latvia with corpo. tendency Lithuania with corpo. tendency
History and path dependency
• The majority of CEECs adopted Corpor and Comp models, Austro-Hungarian Empire, German and Anglo-Saxon influence.
• The Hybrid model: countries with a very mixed historical and political background such as Bosnia-Her., Romania and Bulgaria unstable transition. (Limited Poland) .
• CIS: almost all of them adopted Dirigiste capitalism and State capitalism models. far away from the French one. Here is linked to semi-authoritarian regimes “State leaders” or parties or families or oligarchs.
• The tradition and the development of liberal values play also a role. In CIS democracy and freedom are restricted
Competi capitalis
Corporta capitalis
Dirig capit
Hybrid capitalis
State Capitalism
Poverty, 2008 (%pop 4$ day)
45,0 6,1 54,4 37,7 30,7
Gini coefficient, 2009
32,1 27,5 37,2 34,2 35,7
Voice& Account. 00-09
0,050 0,893 -0,763 0,437 -1,157
Fredom Index (avg 2001-09)
2,20 2,80 1,29 2,76 1,00
Unemployme 09 10,2 14,5 12,2 13,0 4,0 GDP growth average 1989-2009
2,36 1,05 0,37 1,20 2,75
Level GDP 2008 (1989=100)
133,3 116,7 98,0 98,3 146,5
GDP per capita, 2009
10254 17641 4909 8766 3403
HDI 2009 0,814 0,869 0,761 0,822 0,760 HDI 1990 0,759 0,807 0,756 0,799 0,785 Life expectancy in years, 1995
70,7 73,0 68,0 71,0 67,0
Life expectancy in years, 2009
70,5 73,0 65,6 71,9 65,7
Life expe growth 95-09
-0,24 0,0 -3,60 1,36 -2,02
EBRD average indexes (2008)
3,253 3,437 2,646 3,281 1,763
An overall and comparative socio-economic development rankModels Total
score (+/-14)
Standardized
value
Corportatist capitalism
+9 1.26
Hybrid capitalism
+1 0.14
Competitive capitalism
0 0
State Capitalism -4 -0.56
Dirigiste capitalism
-6 -0.84
Corporative capitalism: medium to high level of privatisation, wage regulation, high level of Social investment. Freedom and democratic institutions
Some mix: Fdi control, trade Tariff revenue, Foreign owned bank, State owned bank, stock market capitalisation
Type of models and growth
• Variables which identify a competitive capitalist model such as competition, high levels of trade (or similarly, high share of foreign-owned banks), a developed private sector, and advanced reforms towards a market economy (high EBRD index), are not significant for economic growth nor for the per capita GDP
GDP and growth vs competitive capitalist model
Model: OLS. Obs: 28;Dependent variable: level of GDP per capita
2008
Model: OLS. Obs: 28;Dependent variable: GDP growth
1989-2009
var Coef. Std. Err. P>t Coef. Std. Err. P>t
competition 3766.3294252.645
0.385 .9780798 1.623979 0.553
priv_sec-194.0288
154.7295
0.222 -.0028262 .0590873 0.962
ebrd_index 9347.726521.848
0.165 -1.684986 2.490531 0.505
foreign_bank-40.30874
42.20938
0.350 .0084233 .0161187 0.606
_cons-12507.37
5900.486
0.045 3.686458 2.253249 0.115
R-squared 0.5487; Adj R-squared 0.4702 R-squared 0.0511; Adj R-squared -0.1139
Prob > F = 0.0008 Prob > F = 0.8686
GDP and HDI vs Corporatist capitalist model
• On the contrary GDP and HDI in particular are correlated with 1) higher levels of public expenditure in health and education and 2) democratic political rights and civil liberties.
• These two variables identify better a corporative capitalist type of socio-economic model.
Albania
Armenia
Azerbajan
Bulgaria Croatia
Czech Rep
Estonia
Georgia
Hungary
Kazakhstan
Kyrgyz Rep
Latvia Lithuania
Poland
Romania
Russia
Slovak
Slovenia
Tajikistan
Turkmenistan
Ukraine
Uzbekistan
-2-1
01
-2 -1 0 1 2
Scores for factor 2
Belarus
Montenegro
Macedonia
Serbia
Bosnia H
Moldova
Scores for factor 1
Scatter for Factor 1 and 2
Source: own elaboration
Factor analysis
• Hungary and Slovenia have higher levels of Factor 2, which characterizes better a Corporative model,
• Slovak and Estonia have higher levels of Factor 1 which characterizes a Competitive capitalist model.
• CIS are scattered close to each others, identifying the Dirigiste model, and Turkmenistan, Belarus and Uzbekistan, staying in another corner of the figure, are captured in the State capitalist model.
• A Hybrid model brings together Romania and Bulgaria.
GDP and HDI vs relevant variables for the Corporatist capitalist model
Model: OLS. Obs: 28;Dependent variable: HDI 2007
Model: OLS. Obs: 28;Dependent variable: GDP per cap
2008
Var Coef. Std. Err. P>t Coef. Std. Err. P>t
Pol Rig & Civ Lib
-.02383
.003890.000
-2081.45
538.0074
0.001
Exp edu&healt
.006712
.003130.044
1124.628
432.4085
0.017
cons.836691
.034930.000
7341.524
4825.683
0.143
R-squared 0.7629; Adj R-squared 0.7403
R-squared 0.6478; Adj R-squared 0.6143;
Prob > F = 0.0000 Prob > F = 0.0000
From institutions to development through capability
• Main assumption: countries which experienced ↑ in HD economic growth: consequence of an expansion of people capabilities.
• appropriate institutions + investments socio-economic dim. better level of capability endowment:
Institutions Capabilities & HD Growth (with Development)
What is an institution
• institutions are rules and social norms which structure social interaction. They can effectively enlarge/diminish capabilities, by the way in which they affect political rights (freedom, democracy, participation) and social rights (public resources for collective purposes).
The link between institutions & capabilities
A country with democracy & freedom people capabilities (because of collective lobbying) +than a country where these
rights are restricted. Public choices collective benefits
Institutions: freedom, participation, democracy, social rights
HDI & Capabilities
the Capability curve
DEs B
C
A
ETEs
AEs
Testing hp: from institutions to human development
OLS model - Obs 28
Dependent Variable: HD (average LEI and EI) 2007 I Regression with education and
V&A II Regression with interaction VA
and Edu Variables Coeff. Variables Coeff.
Health expenditure .0066548**
(.0031919) Health expenditure .0052873** (.0027672)
Freedom
0096823* (.0030409)
Freedom
. 0122228* (.0025019)
Education expenditure (Edu)
-.0017852 (.0063819)
VA_Edu
0000709** (.0000377)
Voice & Accountablity (VA)
.0010574 (.001026
5)
Constant
.780512* (.0182849)
Constant . 7685463* (.0093681)
R-squared 0. 7792= Adj R-square 0. 7240
R-squared 0. 7940 Adj R-square 0. 8221
Mean dependent var 0.8467 Mean dependent var 0.8467 Prob(F-statistic) 0.000000 Prob(F-statistic) 0.000000 Significance level at * = 1%, ** = 5%; *** = 10%.
EduionParticipatFreedomHealthExpHD &321
From human development to economic growthDependent Variable: GDP per Capita (US$,
PPP) Method: Least Squares
Included observations: 26 Variable Coefficient Std. Error P-Value
Life Expectancy index
1.661743 0.414746 0.0006*
Education index 2.127335 0.538301 0.0006* Constant -2.563643 0.627456 0.0005*
Adjusted R-squared 0.545264 Log likelihood 26.54466
Durbin-Watson stat 1.193667 Prob(F-statistic) 0.000116
Dependent Variable: GDP per Capita 2008 (US$,
PPP) Method: Least Squares
Included observations: 28 Variable Coefficient Std. Error P-Value
Life Expectancy index
53177.6 0.414746 0.000*
Education index 127157.2 0.538301 0.000* Constant -148035.4 0.627456 0.000*
R-squared 0.7491 Adjusted R-squared 0.7290 Prob(F-statistic) = 0.0000
iEILEIC
GDPppp
21
Test for 2008
Test for 2002
There can be EG without HD but if there is HD, then there will definitely be economic growth.
HD: sufficient condition
Pairwise Granger Causality TestsIncluded observations 26
Null Hypothesis: F-Statistic
Probability
Hp
EDUCATION does not Granger Cause GDP
0.073
91
0.929
02
Rejected
GDP does not Granger Cause EDUCATION
5.174
97
0.01607*
Accepted
LIFE does not Granger Cause GDP 0.252
66
0.779
30
Rejected
GDP does not Granger Cause LIFE 3.703
01
0.04385*
Accepted
(2) HDI/Eco. Growth with distribution
(1) Democracy (3)
(0) Social Capital & Middle class
Path of development and democracy
(0) middle class and social capital create democratic institutions (1); then democracy, social capital and middle cl. bring about human development and economic growth (2). the middle class, and social capital are reinforced by the human development and growth (3) (top down process).
Final remarks 2
1. Dirigiste capitalist economies perform worst: growth without development; voice without social opportunities
2. State capitalist economies had growth without voice do not enjoy pluralism and democracy
3. Poverty and inequality in the majority of countries. CEECs better than CIS and former Yugoslav. A common thing in the life expectancy
4. The worst situation can be found in Russia, Ukraine, Moldova,
Tajikistan, Kyrgyzstan and Georgia, where both the levels of HDI and of GDP are still lower today than in 1989-90.
4. Higher HDI is always associated with democracy and semi-
democracy regimes rather than authoritarian regimes.
Competitive vs Corporatist model of Capitalism
• EBRD market oriented reforms are not significant for growth.
• Competitive capitalist model var. (competition, +trade/foreign-owned banks, +private sector, +reforms toward a market economy) are not significant for economic growth nor for the per capita GDP
• Corporatist capitalist model var (+levels of public expenditure in health and education and democratic political rights and civil liberties) cause a higher HDI and GDP per capita.
Final Remarks on Variety of capitalism
• Freedom and social rights: the corporative model is able to guarantee a better combination! As a good soc.team wt 11
• Countries of the corporative model show always better socio-economic var.: inequality, poverty, Voice & Accountability, HDI. Countries of the Dirigiste model show worse indicators.
• A better institutional framework improves the level of HD:
institutional framework human development economic growth