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Do Transition Economies and Developing Countries Have Similar Destinies?

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Abstract

This paper evaluates the potential of transition economies for achieving sustainable improvements in living standards vis-à-vis developing countries based on their productivity performance. The comparison is made using a bootstrapped Malmquist productivity index and its technological and efficiency change components. The results of estimation indicate that transition economies enjoy significantly higher increases in technical efficiency than developing countries with comparable rates of real GDP growth. Therefore, these results suggest that the former group of countries may have better growth prospects than the latter group, giving empirical support to Stern and Fries’ (Foreign Policy 111:164–165, 1998) optimism that transition economies are the “tiger” economies of tomorrow.

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Notes

  1. In this paper, “technological change” and “technical change” are used interchangeably.

  2. See for example Campos and Coricelli (2002) for an excellent summary of transition process with overview of the literature.

  3. Kronenberg (2004) explains that the curse of natural resources is the tendency of countries that are richly endowed with natural resources to grow slowly.

  4. The term “less developed countries” is applied here in its usual sense, i.e., with respect to the industrialized world, not to the transition economies. It is used here interchangeably with “developing countries.”

  5. The description of methodology is similar to the one provided in “Big Bang versus Gradualism – A Productivity Analysis” (2005) that I have co-authored with Hans J. Czap.

  6. Grifell-Tatjé and Lovell (1995) show that the Malmquist scores become consistently biased when the VRS assumption is applied to the data exhibiting non-constant returns to scale. However, using CRS is not a solution to the problem since it accurately measures TFP changes only if the true technology is CRS, assuming which is unsuitable for the given sample of countries.

  7. Similar analysis can be performed for a technological decline.

  8. An alternative to the bootstrap is the construction of asymptotic confidence intervals based on the Central Limit Theorem, as noted by Semenick Alam (2001). However, this approach is not suitable for small samples.

  9. The number of countries in each group (transition and LDCs).

  10. MacKinnon (2002) recommends that the number of simulations be no less than 999 to diminish the loss of the power of the test to a suitable level.

  11. World Development Indicators online database, http://www.worldbank.org/data.

  12. Following Easterly and Levine (2001).

  13. ILO. Yearbook of labor statistics. Various years.

  14. ADB. Key indicators 2004. http://www.adb.org/documents/books/key_indicators.

  15. CIA. The world factbook. Online at http://www.cia.gov/cia/publications/factbook/ and in print.

  16. UNDP. Human Development Index, http://hdr.undp.org/statistics/data/indic/indic_2_3_2.html.

  17. Based on the confidence interval constructed using the percentile method described above.

  18. As cited in Helpman (1997).

  19. Van den Berg, H. and Lewer, J. International Trade: The Engine of Growth? – An Analysis of the Dynamic Relationship between International Trade and Economic Growth. This book is not yet published.

  20. A slight discrepancy in the list is dictated by the availability of the data.

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Acknowledgements

This paper has benefited greatly from review and comments by Hendrik Van den Berg, James Schmidt, and Lilyan Fulginiti, as well as from comments by the participants of the session on transition economies at the 42nd Annual Meeting of the Missouri Valley Economic Association. Special thanks to Hans Jörg Czap for valuable ideas and continuous discussions.

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  1. Wilkes Honors College, Florida Atlantic University, 5353 Parkside Drive, Jupiter, FL, 33458, USA

    Kanybek Nur-tegin

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Nur-tegin, K. Do Transition Economies and Developing Countries Have Similar Destinies?. Atl Econ J 35, 327–342 (2007). https://doi.org/10.1007/s11293-007-9073-y

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