Journal of Economics and Financial Analysis, 4 (2), pp. 1-26, [2020]

The Impact of Macroeconomic and Institutional Factors on Economic Growth in the CEE-4 Countries



The aim of the study is to examine the main factors driving economic growth in the CEE-4 countries since the transition with the main focus on macroeconomic policies and institutions. The building of a market economy in the region required deep macroeconomic reforms and the creation of a wide range of institutions and business practices needed to support those reforms. Since the collapse of communist regimes, the CEE-4 countries have adopted in the early 1990s a set of policy principles focused on fiscal discipline, interest rate liberalisation, trade and financial liberalisation, privatisation, deregulation and openness to direct foreign investment. Macroeconomic stability by itself, however, does not ensure high rates of GDP growth. In most cases, sustained high rates of growth also depend upon key structural measures, such as regulatory reform, civil service reform, improved governance, and banking sector reform. Institutions of central planning in the CEE-4 region were one of the key barriers to growth prior to the transition. As the development of institutions has been necessary to support the well-functioning market economies in the CEE-4 region, the study also examines deep factors of production – institutions – in addition to the demand-side and the supply-side factors affecting output.


Economic growth; Macroeconomic policies; Institutions; Central and Eastern European countries; Bayesian Model Averaging.

JEL Classification

C11, C22, O43, O47.

Full Text:


Acemoglu, D. & Johnson, S. (2006). Disease and Development: The Effect of Life Expectancy on Economic Growth. NBER Working Paper No. 12269, June.

Acemoglu, D., Naidu, S., Restrepo, P. & Robinson, J. (2014). Democracy Does Cause Growth. NBER Working Paper 20004, March.

Acemoglu, D. & Robinson, J. (2000). Political losers as a barrier to economic development. American Economic Review, 90(2), pp. 126-130.

Acemoglu, D. & Robinson, J. (2002). Economic backwardness in political perspective. NBER Working Paper No. 8831.

Acemoglu, D., Johnson, S. & Robinson, J. (2001). Colonial origins of comparative development: An empirical investigation. American Economic Review, 91(5), pp. 1369-1401.

Acemoglu, D., Johnson, S. & Robinson, J. (2002). Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution. Quarterly Journal of Economics, 117(4), pp. 1231-1294.

Acemoglu, D., Johnson, S., Robinson, J. & Thaicharoen, Y. (2003). Institutional causes, macroeconomic symptoms: volatility, crises and growth. Journal of Monetary Economics, 50, pp. 49-123.

Acemoglu, D., Johnson, S. & Robinson, J. (2004). Institutions as the Fundamental Cause of Long-Run Growth. NBER Working Paper No. 10481.

Ahn, S. & Hemmings, P. (2000). Policy influences on economic growth in OECD countries: An evaluation of the evidence. OECD Economics Department Working Papers No. 246, Paris.

Alcala, F. & Ciccone, A. (2004). Trade and productivity. The Quarterly Journal of Economics, 119(2), pp. 613-646.

Ames, B., Brown, W., Devarajan, S. & Izquierdo, A. (2001). Macroeconomic Policy and Poverty Reduction. Report prepared by the International Monetary Fund and the World Bank, IMF, August, Washington.

Baldwin, R., DiNino, V., Fontagne, L., De Santis, R. & Taglioni D. (2008). Study on the Impact of the Euro on Trade and Foreign Direct Investment, European Commission. Economic and Financial Affairs, Economic Papers 321, May, Brussels.

Bardhan, P. (1984). The Political Economy of Development in India. Basil Blackwell, Oxford.

Barro, R. (1997). Determinants of Economic Growth: A Cross–Country Empirical Study. MIT Press, Cambridge.

Barro, R. & Lee, J-W. (1994). Sources of economic growth. Carnegie-Rochester Conference Series on Public Policy, 40(1), pp. 1-46.

Barro, R. & Lee, J.-W. (2013). A New Data Set of Educational Attainment in the World, 1950–2010. Journal of Development Economics, 104(C), pp. 184-198.

Bates, R., Fayad, G. & Hoeffler, A. (2012). The State of Democracy in Sub-Saharan Africa. International Area Studies Review, 15(4), pp. 323-338.

Bassanini, A. & Scarpetta, S. (2001). The Driving Forces of Economic Growth: Panel Data Evidence for the OECD Countries. OECD Economic Studies, 33(2), pp. 9-56.

Becker, T, Daianu, D., Darvas, Z., Gligorov, V., Landesmann, M., Petrovic, P., Pisani-Ferry, J., Rosati, D., Sapir, A. & Weder Di Mauro, B. (2010). Whither growth in central and eastern Europe? Policy lessons for an integrated Europe. Bruegel Blueprint Series, Vol. XI.

Berger, H. & Nitsch, V. (2005). Zooming Out: The Trade Effect of the Euro in Historical Perspective, CESifo Working Paper No. 1435, presented at the CESifo Area Conference on Global Economy, December 2004.

Bergh, A. & Karlsson, M. (2010). Government size and growth: Accounting for economic freedom and globalization. Public Choice, 142(1-2), pp.195-213.

Bloom, D. & Canning, D., Fink, G., Finlay, J. (2009). The Cost of Low Fertility in Europe. NBER Working Paper No. 14820, March.

Borner, S., Bodmer, F. & Kobler, M. (2004). Institutional Efficiency and its Determinants: The Role of Political Factors in Economic Growth. OECD Development Centre, Paris.

Brunetti, A. (1997). Politics and Economic Growth: A Cross–Country Data Perspective. OECD, Paris.

Bruno, M. & Easterly, W. (1998). Inflation crises and long-run growth. Journal of Monetary Economics, 41, pp. 3-26.

Buckley, P. & Majumdar, R. (2018). The services powerhouse: Increasingly vital to world economic growth. Delloite Deveopment LLC, July.

Bun, M. & Klaassen, F. (2002). Has the Euro Increased Trade?. Tinbergen Institute Discussion Paper TI 2002, 108/2.

Cindea, I. & Cindea, M. (2012). The euro effect on international trade, Procedia – Social and Behavioral Sciences 50, p. 1267-1272.

Dawson, J. (2003). Causality in the freedom – growth relationship. European Journal of Political Economy, 19, pp. 479-495.

De Nardis, S. & Vicarelli, C. (2003). Currency Unions and Trade: The Special Case of EMU. Review of World Economics, 139(4), pp. 625-649.

Drobyshevsky, S., Bozhechkova, A., Trunin, P. & Sinelnikova-Muryleva, E. (2017). The Effect of Interest Rates on Economic Growth. Gaidar Institute for Economic Policy, Working Papers wpaper-2017-300.

Durham, J. (1999). Economic Growth and Political Regimes. Journal of Economic Growth, 4(1), pp. 81-111.

Easterly, W. (2004). National Policies and Economic Growth: A Reappraisal. NYU Development Research Working Paper No. 1.

Fatas, A. & Mihov, I. (2005). Policy Volatility, Institutions and Economic Growth, CEPR Discussion Paper No. 5388, Centre for Economic Policy Research, December, London.

Fernandez, C., Ley, E. & Steel, M. (2001). Model Uncertainty in Cross-Country Growth Regressions. Journal of Applied Econometrics, 16(5), pp. 563-576.

Frankel, J.A. & Romer, D.H. (1999). Does trade cause growth? American Economic Review, 89(3), pp. 379-399.

Hall, R. & Jones, C. (1999). Why do some countries produce so much more output per worker than others? Quarterly Journal of Economics, 114(1), pp. 83-116.

Hauptmeier, S., Sanchez-Fuentes, A. & Schuknecht, L. (2011). Towards expenditure rules and fiscal sanity in the euro area. ECB Working Paper No. 1266, November, Frankfurt am Main.

Hauptmeier, S., Sanchez-Fuentes, A. & Schuknecht, L. (2015). Decomposition and determinants of public expenditure policies: the case of the euro area in the EMU period.

Heckelman, J. (2000). Economic freedom and economic growth: a short-run causal investigation. Journal of Applied Economics, 3(1), pp. 71-91.

International Monetary Fund. (2003). Growth and Institutions, World Economic Outlook. April, World Economic and Financial Surveys, Washington.

Jones, E. (1981). The European Miracle: Environments, Economies and Geopolitics in the History of Europe and Asia. Cambridge University Press, Cambridge, UK.

Khan, M. & Senhadji, A. (2000). Threshold Effects in the Relationship Between Inflation and Growth. IMF Working Paper No. 00/110.

Krkoska, L. (2001). Foreign direct investment financing of capital formation in central and eastern Europe. EBRD Working Paper No. 67, London.

Kunze, L. (2014). Life expectancy and economic life. Journal of Macroeconomics, 39(A), pp. 54-65.

Levine, R. & Renelt, D. (1992). A Sensitivity Analysis of Cross-Country Growth Regressions. American Economic Review, 82(4).

Lorentzen, P., McMillan, J. & Wacziarg, R. (2008). Death and Development. Journal of Economic Growth, 13(2), pp. 81-124.

Miller, T., Kim, A. & Roberts, J. (2019). 2019 Index of Economic Freedom. 25th Anniversary Edition, the Heritage Foundation, Washington.

Moral-Benito, E. (2007). Determinants of Economic Growth: A Bayesian Panel Data Approach. CEMFI Working Paper No. 0719, December, Madrid.

Neuhaus, M. (2006). The Impact of FDI on Economic Growth: An Analysis for the Transition Countries of Central and Eastern Europe. Physica-Verlag A Springer Company.

North, D. (1981). Structure and Change in Economic History. W.W. Norton & Co., New York.

North, D. (1990). Institutions, Institutional Change and Economic Performance. Cambridge University Press, Cambridge, UK.

North, D. (1994). Economic Performance Through Time. American Economic Review, 84(3), pp. 359-368.

Papaioannou, E. & Siourounis, G. (2008). Democratisation and Growth. Economic Journal, 118(532), pp. 1520–1551.

Persson, T. & Tabellini, G. (2006). Democracy and Development: The Devil in the Details. American Economic Review, 96(2), pp. 319-324.

Persson, T. & Tabellini, G. (2008). The Growth Effects of Democracy: Is it Heterogenous and How Can It Be Estimated?, in E. Helpman (eds.) Institutions and Economic Performance. Cambridge: Harvard University Press.

Piatek, D., Szarzec, K. & Pilc, M. (2013). Economic Freedom, Democracy and Economic Growth. A Causal Investigation within Transition Countries. Post-Communist Economics, 25(3), pp. 267-288.

Prochniak, M. & Witkowski, B. (2013). Time Stability of the Beta Convergence among EU Countries: Bayesian Model Averaging Perspective. Economic Modeling, 30(C), pp. 322–333.

Prochniak, M. & Witkowski, B. (2014). The application of Bayesian model averaging in assessing the impact of the regulatory framework on economic growth. Baltic Journal of Economics, 14(1-2), pp. 159-180.

Rodrik, D. (1999). Where did all the growth go? External shocks, social conflict and growth collapses. Journal of Economic Growth, 4(4), pp. 385–412.

Rodrik, D. (2003). Argentina: A Case of Globalisation Gone Too Far or Not Far Enough?, in: J. Teunissen, A. Akkerman (eds.), The Crisis That Was Not Prevented: Lessons for Argentina, the IMF, and Globalisation. FONDAD, January 2003.

Rodrik, D. (2007). One economics, Many Recipes: Globalization, Institutions, and Economic Growth. Princeton University Press.

Rose, A. (2004). A Meta-Analysis of the Effect of Common Currencies on International Trade, NBER Working Paper No. 10373, March.

Sala-i-Martin, X. (1997). I Just Ran Two Million Regressions. American Economic Review, 87(2), pp. 178-183.

Sala-i-Martin, X., Doppelhofer G. & Miller R. (2004). Determinants of Long-Term Growth: A Bayesian Averaging of Classical Estimates (BACE) Approach. American Economic Review, 94(4), po. 813-835.

Schadler, S., Mody, A., Abiad, A. & Leigh, D. (2006). Growth in the Central and Eastern European Countries of the European Union. IMF Occasional Paper No. 252.

Schuknecht, L. (2009). Booms, Busts and Fiscal Policy. Public Finances in the Future?, London: Politeia.

Svirydzenka, K. (2016). Introducing a New Broad-based Index of Financial Development. IMF Working Paper WP/16/5, January, Washington.

Temple, J. (1999). The new growth evidence. Journal of Economic Literature, 37(1), pp. 112-156.

Turrini, A. (2008). Fiscal policy and the cycle in the Euro Area: The role of government revenue and expenditure. European Economy - Economic Papers 323, European Commission.

Weede, E. (2006). Economic freedom and development: new calculations and interpretations. Cato Journal, 26(3), pp. 511– 524.

Zeugner, S. & Feldkircher, M. (2015). Bayesian Model Averaging Employing Fixed and Flexible Priors: The BMS Package for R. Journal of Statistical Software, 68(4), pp. 1-37.

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.