Legal framework, political environment and economic freedom in central and Eastern Europe: do they matter for economic growth?

Ozren Uzelac, Milivoje Davidovic and Marijana Dukic Mijatovic

Post-Communist Economies, 2020, vol. 32, issue 6, 697-725

Abstract: This article investigates the impact of institutional variables on economic activity (GDP) in 19 Central and Eastern Europe (CEE) countries, covering the period 1999–2016. We utilise Principal Component Analysis (PCA) to construct a hybrid measure of economic freedom, and the Random Effect model to estimate the causalities. The analysis shows that many CEE countries have improved their institutional setting, especially the control of corruption. The regression results indicate that the control of corruption and democracy have a positive and significant impact on the GDP. Also, political stability promotes growth, while the quality of regulation is statistically insignificant. Finally, the rule of law and economic freedom accelerate economic growth. Overall, the legal framework, political stability and economic freedom shape the economic reality in the CEE region. We conclude that institutions matter for growth in the CEE countries.

Date: 2020
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DOI: 10.1080/14631377.2020.1722583

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