Uncertainty and growth: the case of transition economies

Andrej Susjan and Tjasa Redek
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Andrej Susjan: Faculty of Economics, University of Ljubljana, Slovenia
Tjasa Redek: Faculty of Economics, University of Ljubljana, Slovenia

No 013/2007, SCEME Working Papers: Advances in Economic Methodology from SCEME

Abstract: The paper investigates the relationship between fundamental uncertainty, a recurrent theme in post-Keynesian economic literature, and economic performance in transition economies. Uncertainty in the transitional economic environment is enhanced by factors such as institutional transformation, political and social instability, and legacies of the past. To capture the changes in the levels of uncertainty, the authors have designed the uncertainty index, based on a weighted selection of Heritage Foundation and Freedom House data. The correlation between the uncertainty index and growth is strong and clearly negative. Panel data analysis based on a growth model, supplemented by variables to simulate transitional cycle, and performed on a sample of transition economies for the period 1995-2002, confirms that uncertainty has a negative impact on economic growth.

Keywords: uncertainty; economic transition; institutions; economic growth; foreign direct investment (search for similar items in EconPapers)
JEL-codes: B52 O57 P27 P30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-tra
Date: 2007-01

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Persistent link: http://EconPapers.repec.org/RePEc:sti:wpaper:013/2007

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