Growth in transition countries: big bang versus gradualism

This study analyzes the impact of the speed of transition reforms on economic growth in transition countries in the context of the debate on ‘big-bang vs. gradualist approach’. It builds a new indicator for the speed of transition reforms based on a three-way principal component analysis. It shows that: (i) the speed of transition reforms Granger-causes economic growth and there is no reverse causation; (ii) the impact of contemporaneous speed of transition reforms on economic growth is negative, but becomes positive in the longer horizon; and (iii) other factors, such as initial conditions and macroeconomic stabilization programmes, also drive economic growth. Although the first two results are robust to different estimators, the impact of control variables depends on the econometric specification