An Empirical Analysis of the Determinants of Economic Growth in the Western Balkans

Abstract

The objective of this paper is to assess the main determinants and the policies that affect economic growth in the Western Balkan over the period 1994 to 2015. It employs techniques such as pooled OLS, fixed and random effects model, and Hausman-Taylor model with instrumental variables (IV). The study shows evidence of conditional convergence, indicating the need for an upward move in the steady state level. The results show that foreign direct investments, gross savings and domestic credit to the private sector have a positive effect on per capita growth. On the other hand, initial level of per capita growth, corruption, unemployment, and general government final consumption, have a negative relationship with per capita growth. The study also shows a puzzling result, that schooling is not a significant factor for growth in Western Balkans. The study also highlights the relevance of attracting more foreign direct investments and reduction in corruption.

If the inline PDF is not rendering correctly, you can download the PDF file here.

  • Baltagi, B. H., 2013. Econometrics analysis of panel data. England: John Wiley & Sons Ltd.

  • Barro, R., and Sala-i-Martin, X., 1992. Public finance in models of economic growth. The Review of Economic Studies, 59(4), 645-661. doi:

    • Crossref
    • Export Citation
  • Fetai, B., 2015. Financial Integration and Financial Development: Does Financial Integration Metter? European Research Studies, XVIII(2), 97-106.

  • Gabrisch, H., 2015. Financial Constraints on Growth: Comparing the Balkans to Other Transition Economies. Eastern European Economics, 53(4), 309-327. doi:

    • Crossref
    • Export Citation
  • Greene, W. H., 2008. Econometric analysis (6th ed.). New Jersey: Pearson Education, Inc.

  • Hausman, J. A., 1978. Specification Tests in Econometrics. Econometrica, 46(6), 1251-1271. doi:

    • Crossref
    • Export Citation
  • Hausman, J. A., and Taylor, W. E., 1981. Panel Data and Unobservable Individual Effects. Econometrica, 49(6), 1377-1398. doi:

    • Crossref
    • Export Citation
  • Hausmann, R., Rodrik, D., and Velasco, A., 2006. Getting the Diagnosis Right. Finance and Development, 43(1). http://www.imf.org/external/pubs/ft/fandd/2006/03/hausmann.htm.

  • Levine, R., 1997. Financial Development and Economic Growth: Views and Agenda. Journal of Economic Literature, 35(2), 688-726.

  • Lewis, A. W., 1954. Economic Development with Unlimited Supplies of Labor. Manchester School, 22(2), 139-191. doi:

    • Crossref
    • Export Citation
  • Lewis, A. W., 1980. The Slowing Down of the Engine of Growth. The American Economic Review, 70(4), 555-564.

  • Lyroudi, K., Papanastasiou, J., and Vamvakidis, A., 2004. Foreign direct investment and economic growth in transition economies. South Eastern Europe Journal of Economics, 1(2), 97-110.

  • Mauro, P., 1995. Corruption and Growth. The Quarterly Journal of Economics, 110(3), 681-712. doi:

    • Crossref
    • Export Citation
  • Mauro, P., 1997. The Effects of Corruption on Growth, Investment, and Government Expenditure. IMF Working Paper, 96/98, 28.

  • Moore, D., and Vamvakidis, A., 2007. Economic Growth in Croatia: Potential and Constraints. IMF Working Paper, WP/07/198(aug.), 38. www.imf.org/external/pubs/ft/wp/2007/wp07198.pdf.

  • Murgasova, Z., Ilahi, N., Miniane, J., Scott, A., Vladkova-Hollar, I., and IMF Staff Team, 2015. The Western Balkans 15 years of economic transition. In IMF (Ed.), Regional Economic Issues (REI) (pp. 118). Washington, D.C.: International Monetary Fund.

  • Rodrik, D., Hausmann, R., and Velasco, A., 2005. Growth Diagnostics. Official webpage, 1-35. http://j.mp/2nRVxjw.

  • Tevdovski, D., 2015. Decent Work Diagnostics for a Western Balkan Country Stuck in the Neo-liberal Doctrine: The Case of the Republic of Macedonia. Global Labor Journal, 6(2), 203-220.

  • Tsounta, E., 2014. Slowdown in Emerging Markets: Sign of a Bumpy Road Ahead? IMF Working Paper, 14/205, 23.

Journal + Issues

Search