XML

Seoul Journal of Economics - Vol. 21 , No. 3
[Paper List] [Go to Volume List]

[ Article ]
Seoul Journal of Economics - Vol. 21, No. 3, pp. 427-452
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 31 Aug 2008
Received 18 Jan 2008 Revised 02 Jul 2008

Money Can’t Buy Me Growth: Making Change Happen in Post-communist Countries?
Jan Fidrmuc
Senior Lecturer, Department of Economics and Finance, and Centre for Economic Development and Institutions (CEDI), Brunel University, Uxbridge, UB8 3PH, United Kingdom, Tel: +44-1895-266-528, Fax: +44-1895-203-384 (Jan.Fidrmuc@brunel.ac.uk)(jan@fidrmuc.net), http://www.fidrmuc.net/

JEL Classificaion: H87, O19, O47, P27

Abstract

The European Bank for Reconstruction and Development (EBRD) was set up in 1991 with the aim to foster private sector development and to encourage the creation of the market economy in the post-communist countries of Central and Eastern Europe and the former Soviet Union. Between 1994 and 2004, the EBRD has spent over 20 billion euros on loans and equity stakes in private and public investment projects in the target countries. This paper assesses the return on this investment in terms of economic growth in transition economies. The main finding is that Western money can’t buy us growth in post-communist countries ― although money does seem to buy market-oriented reform and democratization. Hence, the EBRD has only an indirect effect (if any) on economic growth during transition: EBRD investment encourages economic reforms which in turn translate into faster growth.

Keywords: Reform, Growth, Transition, Solow model
Acknowledgments

This paper was prepared for the conference on “Transition Experience in Eastern Europe and Implications for North Korea” organized by Seoul National University and Korea Institute for International Economic Policy, Seoul, January 18th, 2008. I benefited greatly from comments and suggestions received from conference participants in Seoul, seminar participants at Brunel, EBRD, Tartu and ETH Zurich as well as from two anonymous referees. I am grateful to the European Bank for Reconstruction and Development for supplying the data used in this paper.

References
1. Alesina, Alberto, and Drazen, Allan. “Why are Stabilizations Delayed?” American Economic Review 81 (No. 5 1991): 1170-88.
2. Babetskii, Ian, and Campos, Nauro F. Does Reform Work? An Econo- metric Examination of the Reform-Growth Puzzle. WDI Working Paper No. 870, William Davidson Institute, University of Michigan, 2007.
3. Balusubramanyam, V. N., Salisu, M., and Sapsford, David. “Foreign Direct Investment and Growth in EP and IS Countries.” Economic Journal 106 (No. 434 1996): 92-105.
4. Bhaumik, Sumon Kumar. “Does the World Bank have any impact on human development of the poorest countries? Some preliminary evidence from Africa.” Economic Systems 29 (No. 4 2005): 422-32.
5. Borensztein, E., De Grerorio, J., and Lee, J-W. “How Does Foreign Direct Investment Affect Economic Growth?” Journal of Interna- tional Economics 45 (No. 1 1998): 115-35.
6. Burnside, C., and Dollar, D. “Aid, policies and growth.” American Economic Review 90 (No. 4 2000): 847-68.
7. Coviello, Decio, and Islam, Roumeen. Does Aid Help Improve Economic Institutions? World Bank Policy Research Working Paper No. 3990, August 2006.
8. Depetris Chauvin, Nicolas M., and Kraay, Aart. What Has 100 Billion Dollars Worth of Debt Relief Done for Low-Income Countries? Princeton University and World Bank, Mimeograph, 2005.
9. Doucouliagos, Hristos, and Paldam, Martin. The Aid Effectiveness Literature: The Sad Result of 40 Years of Research. University of Aarhus, Mimeograph, 2006a.
10. Doucouliagos, Hristos, and Paldam, Martin. Aid Effectiveness on Growth: A Meta Study. University of Aarhus, Mimeograph, 2006b.
11. Doucouliagos, Hristos, and Paldam, Martin. Aid Effectiveness on Accumulation: A Meta Study. University of Aarhus, Mimeograph, 2006c.
12. Doucouliagos, Hristos, and Paldam, Martin. Conditional Aid Effectiveness: A Meta Study. University of Aarhus, Mimeograph, 2006d.
13. Easterly, William. The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good. Oxford: Oxford University Press, 2006.
14. Falcetti, Elisabetta, Lysenko, Tatiana, and Sanfey, Peter. “Reforms and Growth in Transition: Re-examining the Evidence.” Journal of Comparative Economics 34 (No. 3 2006): 421-45.
15. Fidrmuc, Jan. “Economic Reform, Democracy and Growth during Post-communist Transition.” European Journal of Political Economy 19 (No. 3 2003): 583-604.
16. Gregory Mankiw, N., Romer, David, and Weil, David N. “A Contribution to the Empirics of Economic Growth.” The Quarterly Journal of Economics 107 (No. 2 1992): 407-37.
17. Heybey, B., and Murrell, P. “The relationship between economic growth and the speed of liberalization during transition.” Journal of Policy Reform 3 (No. 2 1999): 121-37.
18. Huang, Shuo. Foreign Direct Investment and Regional Growth in China. Brunel University, Mimeograph, 2008.
19. Islam, Nazrul. “Growth Empirics: A Panel Data Approach.” The Quarterly Journal of Economics 110 (No. 4 1995): 1127-70.
20. Kim, Byung-Yeon, and Pirtilla, Jukka. “Political Constraints and Economic Reform: Empirical Evidence from the Post-communist Transition in the 1990s.” Journal of Comparative Economics 34 (No. 3 2006): 446-66.
21. Krueger, G., and Ciolko, M. “A note on initial conditions and liberaliza- tion during transition.” Journal of Comparative Economics 26 (No. 4 1998): 718-34.
22. Li, H., Liu, Z. N., and Rebelo, I. “Testing the Neoclassical Theory of Economic Growth: Evidence from Chinese Provinces.” Economics of Planning 31 (Nos. 2-3 1998): 117-32.
23. Liu, X., Wang, C., and Wei, Y. “Causal Links between Foreign Direct Investmet and Trade in China.” China Economic Review 12 (Nos. 2-3 2001): 190-202.
24. Luroudi, K., Papanastasiou, J., and Vamvakidis, A. “Foreign Direct Investment and Economic Growth in Transition Economies.” South Eastern Europe Journal of Economics 1 (No. 1 2004): 97-110.
25. Neuhaus, Marco. The Impact of FDI on Economic Growth: An Analysis for the Transition Countries of Central and Eastern Europe. Springer, 2006.
26. Pramadhani, M., Bissoondeeal, R., and Driffield, N. FDI, Trade and Growth, A Causal Link. Aston Academy for Research in Manage- ment, Aston Business School, RP 0710, 2007.
27. Przeworski, Adam, and Vreeland, James Raymond. “The Effect of IMF Programs on Economic Growth.” Journal of Development Economics 62 (No. 2 2000): 385-421.
28. Rajan, R., and Subramanian, A. Aid and Growth: What Does the Cross-Country Evidence Really Show. IMF WP 05/127, 2005.
 

Editorial Office, Seoul Journal of Economics, Institute of Economic Research, Seoul National University 599 Gwanangno, Gwanak-gu, Seoul 151-746, Korea
Tel: +82-2-880-5434 | Fax: +82-2-888-4454 | E-mail: sje@plaza.snu.ac.kr
Copyright (c) 2020 SJE. All rights reserved.