Lessons from Integration Within 'Nafta': A Prospect for Europe

Emerging Markets Review, 2005

This paper presents a new empirical methodology for evaluation of the institutional system's development in transition economies and the impact it has on economic performance. We have developed and used a methodology of estimation of an operational indicator of institutional system dynamics to observe the "institutional reformseconomic growth" interdependence in transition economies. The empirical work reveals a certain dependence between institutional development and growth. An application of the approach to the problems of international economic integration of transition economies in the context of EU accession allows us to assess the role of democratization and the rule of law in particular.

Open Economies Review, 2004

The European experience illustrates that institutional integration interacts with economic integration at the regional level. In this paper we ask how economic and institutional integration are linked and whether there is a causal link between the two. We present an original indicator of institutional integration and study how it developed vis-à-vis diverse measures of economic integration. In particular, we ask what insights can be drawn from the European process of regional integration, which started in the 1950s, for regional integration in Latin America today. We find that Latin America is currently less economically integrated not only than the European Union today, but for certain economic variables even than the European Union in the 1960s. A VAR analysis illustrates that the link between institutional and economic integration has worked both ways throughout the European experience. There is also evidence that stronger institutional integration has indeed led to deeper economic integration. integration. This paper tests the hypothesis that institutional integration interacts with economic integration at the regional level. We analyse and compare the degree of institutional and economic integration in Europe since the late 1950s and in Latin America since the 1980s. We ask whether there are parallels between the early stages of European integration in the 1950s and 1960s, and Latin America today. We then explore the causality between institutional and economic integration. This provides some insights for the future of institutional and economic integration in Latin America. This topic is of policy relevance as Latin America currently stands at a crossroad for deciding the future of regional cooperation. Issues are being debated such as how deep regional integration should become and whether Latin America should give priority to pursuing so-called "South-South" arrangements (e.g. Mercosur) or "North-South" arrangements (e.g. FTAA). Much of the literature so far has focused on individual elements of regional integration within regions. As to integration in Latin America, for instance Calvo and Mendoza (1997) and Milesi-Ferretti and Razin (1997) have examined the sustainability of current accounts imbalances and fiscal policies. Another branch of the literature has focussed on the choice of exchange rate arrangements and the timing of monetary union in Latin America: see for example Eichengreen (1998), Berg, Borensztein and Mauro (2000) and Fratianni and Hauskrecht (2002). Alberola, Busián and Fernández de Lis (2002) discuss the links between economic integration, macroeconomic stability and structural reforms. García Herrero and Santillán (2002) compare the degree of financial sector development across Latin American countries. Finally, Hochreiter, Schmidt-Hebbel and Winkler (2002) assess the issue of the sustainability of a monetary union in Latin America vis-à-vis the European experience. This paper contributes to this debate in two ways. First, we present an original measure of institutional integration for Europe since the 1950s and for Latin America since the 1980s. The intuition behind this measure comes from Balassa's (1961) seminal work on classifying different stages of regional integration. Second, we test empirically for a causal relationship between institutional integration and a broad set of measures of economic integration on the basis of a VAR methodology. The paper is organised as follows. Section 1 presents our measure of institutional integration for groups of European and Latin American countries. In Section 2 we examine a number of variables suggested by the optimum currency area (OCA) theory. These include measures of the synchronisation of the business cycle, convergence of inflation rates, exchange rate variability, trade openness and integration, convergence of interest rates, and income convergence. We then tackle in Section 3 the core question of linking institutional and economic integration in a VAR framework. Section 4 offers concluding remarks.

2001

The New Institutional Economics integrates the theory of institutions into mainstream economics. Institutions are formally and informally the "rules of the game" in society. As such, institutions structure economic activity and influence its outcomes at both micro and macro levels. This paper reviews the empirical literature, focussing on its relevance to transitional economies. We conclude that institutions matter profoundly for economic growth and development. However, although empirical research has increased understanding of the role of institutions in the economy, many questions remain open, especially for transition economies. Knowledge gaps that invite further investigation include: transmission channels between institutions and national output; the issue of mutual endogeneity between institutions and economic growth; the structure and size of the institutional framework and its influence on economic performance; and the links between success in integration with the EU of transition economies, financial support from the EU and the quality of institutions.

This paper investigates the speed of institutional development induced by European integration. The hypotheses are the following. The prospect for European countries to join the EU disposes them to strengthen their institutions, so that the speed of institutional development is high. Furthermore, EU Member States preparing for the introduction of the euro have incentives to develop their institutions, but the speed of institutional development is much lower. As soon as Member States introduce the euro, institutional development grinds to a halt, or is even reversed, as there could be incentives to undo reforms. To test these hypotheses, we estimate a dynamic panel data model, in which the institutional development is measured as positive changes in Worldwide Governance Indicators (WGIs).

2015

Authors examine the present state of art in conducting reforms among transition economies and briefly discuss the issue of the endogeneity of the transition process. Relying upon these findings they investigate what role the speed and/or progress in reforms play in enhancing economic growth and output level of a transition economy. It is shown that initial, inherited conditions determine both – growth and transition progress. Transition progress alone had some influence on growth in the first phase of transition but further on becomes insignificant. However, the impact of initial GDP level is evident during entire period of transition provoking a peculiar outcome: more developed economies perform better. Analysing growth under transition in the longer run authors examine how transition economies behave in comparison with the standard long term models of growth. It was shown that after 18 years of transition reforms the economies in question still structurally differ from market econ...

Ekonomski anali, 2020

The quality of institutions and its impact on economic growth has become more important in recent years, especially in transition countries that must reform their institutions to create a market economy and meet the preconditions for joining the EU. This is the case with the countries of Southeastern Europe, some of which are already EU members, while others are in the process of joining the EU. This paper examines the effects of institutional quality on the economic growth of South- East Europe and compares these effects in EU and non-EU countries for the period 1996-2017, using Worldwide Governance Indicators (WGI) to measure the quality of institutions and the GDP growth rate. The panel autoregressive distributed lag (ARDL) approach is used to analyse the relationship between institutional quality and economic growth. The results show that in EU countries there is a long-run relationship between institutional quality and economic growth for all significant variables, while in the...

The aim of this paper is to provide a unified approach to institutional convergence in Central- and Eastern European countries towards EU norms (related to the acquis communautaire) and how it relates to growth. It consists of two complementary parts. First, we conduct a cluster analysis of the institutional settings of the Central and Eastern European states on the basis of transition indicators developed and published by the European Bank for Reconstruction and Development. As institutional variables usually exhibit inertia, our analysis is based on time spans of several years, with the appropriate selection related to the significant changes in institutional settings towards European norms, e.g. dates of association agreements, EU accession dates and the like. Second, attention is especially drawn to the connection between the institutional environment and economic growth that diverges significantly between different CEE countries. For the empirical relation between institutional convergence to EU norms and growth, we make use of non-parametric methods that allow consideration of short time series and comparatively low numbers of countries. We found that apart from the first years of transition there is a little evidence for institutional convergence between CEECs and from 1999 the EBRD transition indicators are not significant for growth.

2016

This paper investigates institutional development induced by European integration. We estimate a dynamic panel data model wherein institutional development is measured as positive changes in the Worldwide Governance Indicators, which are explained by the status of the European countries, for example, being a member of the euro area or an EU member state or a candidate country of the European Union, and additional controls. We confirm a positive effect arising from prospective EU membership, although being an EU member state does not influence the institutional development path. For members of the euro area, there is robust evidence for institutional deterioration in one particular area, namely control of corruption.

The general findings of this policy study are that institutions in transition economies are an important determinant that explains to a large extent different economic performances of those countries. Results obtained from empirical econometric analysis demonstrate that one percent increase in quality of institutions is associated practically with one percent increase of growth in GDP per capita. Moreover, the results also suggest that the quality of state institutions was an important determinant of those economies' success in moving towards the full EU membership. Since the efficiency of domestic institutions in BiH is below transition average, and especially below EU-transition and EU-candidate transition countries' averages, BiH can hardly expect further improvement in the speed of EU integration processes without improvement of the efficiency of its institutions. Our quantitative estimates suggest that BiH may count (with higher probability) on EU membership in the medium-term if it improves institutional quality by roughly five percent per year. If improvements in institutional quality remain the same -in the last three years the average improvement was less than two percent -EU integration may take much longer. Finally, our analysis of institutions "relevant" for economic performance in BiH suggests that the most efficient institutions in BiH are institutions relevant for macroeconomic stabilisation, i.e. the Central bank and fiscal institutions. The least efficient institutions in BiH are property rights institutions, regulatory institutions, and institutions for conflict management. In other words, efficiency of non-market institutions in BiH seems more problematic than the efficiency of market institutions.