Frye Chapter4

Frye Chapter4 - Oligarchs and Markets 1/23/05 Chapter Four...

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Oligarchs and Markets 1/23/05 Chapter Four 1 Chapter Four Political Polarization and Economic Performance Previous chapters have outlined a number of theoretical debates and presented a plausible explanation to account for variations in the economic performance of postcommunist countries. This chapter presents a range of evidence from simple bivariate correlations to statistical tests that assess the argument. Most directly, it examines how political polarization, initial conditions, and various aspects of economic reform, such as its level and “partialness” have influenced economic performance in the period under study. The results indicate that political polarization contributes to slow growth controlling for a range of factors commonly associated with these outcomes. Moreover, political polarization appears to influence economic performance by shaping the extent of economic liberalization. There is also evidence that the positive effects of economic reform on economic performance are conditional upon the extent of polarization in the political system. Economic reform under conditions of high polarization is associated with slower growth rates than economic reform in countries in less polarized political systems. These results point to the importance of integrating political conditions into analyses of economic performance. 1 1 These results are largely consistent using inflation and budget balance as dependent variables as well. I report these results in Appendix 1.
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Oligarchs and Markets 1/23/05 Chapter Four 2 Turning to the impact of economic reforms on performance, the results indicate that countries at high levels of economic reform experience higher growth rates. 2 However, partial reform is associated with slower growth rates. That is, where rapid privatization is conducted in an environment of weak corporate governance, rates of economic growth are lower. The latter results suggest the need for a more precise treatment of partial reform. 3 Finally, as other studies have noted, initial conditions have hindered economic growth (Aslund, Boone and Johnson 1996; de Melo Denizer and Gelb 1997; Falcetti et al. 2000). In particular, countries that were members of the USSR experience significantly lower growth rates than other postcommunist countries. However, this effect appears to diminish over time, which indicates that there need not be a new iron curtain dividing the “poor” countries of the former Soviet from other postcommunist countries. It also suggests that the impact of the institutional legacy of the command economy, which was much stronger in the former Soviet Union may decline over time. These findings are subject to a number of caveats, but are consistent across a variety of analyses and measures and are fairly robust. Economic Performance in the Postcommunist World
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Frye Chapter4 - Oligarchs and Markets 1/23/05 Chapter Four...

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