Growth and Institutions in the Transition: How Do Belarus, Russia, and Ukraine Compare to Others

Abstract

Early growth theory from the time of the Solow model focused on factors of production and their productivity, and led to econometric estimates of the sources of growth measuring just these factors. Revived interest in growth as exemplified by Barro and Sala-i-Martin (1995) attempted to inquire about a much wider range of conditions which contribute to greater factor accumulation and productivity. Johnson and Subramanian (2005) note that to answer this question "attention has turned increasingly to institutions"; their paper provides a useful recent survey of the links between growth and institutions. This link has also received considerable attention in the transition literature starting with the ex ante debates between gradualists and big-bang proponents , which may be most usefully seen as a debate on the on the sequencing of stabilization, liberalization and institution building. This vast literature is reviewed in Kolodko, 2004. So far only a small number of empirical studies of this link have been done and generally at a fairly broad level. (Moers 1999, Havrylyshyn and van Rooden 2002, Beck and Laeven 2005).

This paper builds on the latter addressing three aims: describing the path of institutional development followed in three transition countries, Belarus, Russia and Ukraine; situating their achievements in comparison to other transition economies in the region; and providing a tentative assessment of the role that institutions have played in the CIS growth recovery. The paper is structured as follows. Section 2 reviews the empirical literature on determinants of recovery in transition, including in particular macrostabilization, liberalization, and institutional development. Section 3 provides some measures of institutional progress in the three countries and compares them to trends in other groups of transition economies, while Section 4 addresses the relationship between growth on the one hand and the three key determinants noted. The issue of the post-2000 surge of growth in the CIS is discussed here as well. Finally Section 5 summarizes what is known and what remains unclear on the institutions-growth link for transition economies.