International trade and foreign direct investment as growth stimulators in transition economies: does the impact of institutional factors matter?

  • Received October 13, 2017;
    Accepted December 7, 2017;
    Published December 23, 2017
  • Author(s)
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  • Article Info
    Volume 14 2017, Issue #4, pp. 148-170
  • Cited by
    3 articles

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This work is licensed under a Creative Commons Attribution 4.0 International License

The present paper develops a general production function framework, augmented with two institutional variables namely bureaucracy and corruption on 28 transition economies over the period 2000-2015. The authors use various econometric specifications and apply both the Fixed Effects, as well as the advanced system Generalized Method of Moments (GMM) panel data techniques. Empirical findings suggest that the impact of openness in terms of foreign direct investment and international trade is advantageous to all the economies of the panel. Furthermore, the findings indicate that classical growth determinants, such as labor and physical capital, have the expected positive contribution, while macroeconomic instability has a negative effect on real economic activity. Regarding the impact of the two institutional variables, corruption, and bureaucracy, the authors retrieve more influential results, as their impact appears to be diametrically opposite between the former Soviet Union states and the rest of European transition economics.

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    • Figure 1. Relationship between bureaucracy and corruption
    • Figure 2. Timeline of the process of EU accession for European transition economics
    • Figure 3. Scatter plot of indexes of political regimes (democracy vs autocracy)
    • Table 1. Summary statistics
    • Table 2. Correlation matrix
    • Table 3. Empirical results