Legal framework, political environment and economic freedom in central and Eastern Europe: do they matter for economic growth?

Author ORCID Identifier

Milivoje Davidovic:https://orcid.org/0000-0003-1958-5881

Publication Title

Post-Communist Economies

ISSN

14631377

E-ISSN

14653958

Document Type

Article

Abstract

This article investigates the impact of institutional variables on economic activity (GDP) in 19 Central and Eastern Europe (CEE) countries, covering the period 1999–2016. We utilise Principal Component Analysis (PCA) to construct a hybrid measure of economic freedom, and the Random Effect model to estimate the causalities. The analysis shows that many CEE countries have improved their institutional setting, especially the control of corruption. The regression results indicate that the control of corruption and democracy have a positive and significant impact on the GDP. Also, political stability promotes growth, while the quality of regulation is statistically insignificant. Finally, the rule of law and economic freedom accelerate economic growth. Overall, the legal framework, political stability and economic freedom shape the economic reality in the CEE region. We conclude that institutions matter for growth in the CEE countries.

First Page

697

Last Page

725

Publication Date

4-20-2020

DOI

10.1080/14631377.2020.1722583

Keywords

central and Eastern Europe, corruption, economic Freedom, political Stability, Rule of law

Department

Department of Economics

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