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Defying the odds: initial conditions, reforms and growth in the first decade of transition
This paper investigates the relative importance of three sets of factors –
initial conditions, macroeconomic stabilisation and structural reforms – as
determinants of growth in transition economies during the first 10 years. The
paper has two main results. First, average growth over the last 10 years was
substantially determined by initial conditions, both directly and indirectly
through their impact on structural reforms. Second, controlling for different
starting points, there is strong evidence that reforms pay off, while the
effect of initial conditions tends to diminish over time. In addition, we find
that stabilisation measures are important for growth but there is little
evidence of a feedback effect from growth to reforms.
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