Abstract
The aim of this paper is to research, theoretically and empirically, the impact of institutional reforms on economic growth in transition countries (new European Union members) and Croatia, in the period from 1996 to 2012. In order to prove the hypothesis, we will use panel analysis of transition economies and Croatia, namely the Arellano–Bond dynamic panel analysis. The analysis includes two dependent variables (gross domestic product per capita [G.D.P./p.c.]and the share of export in G.D.P.) and five independent variables (total Heritage Index of Economic Freedom, Worldwide Governance Indicators (W.G.I.) government effectiveness indicator, W.G.I. rule of law indicator, corruption perception index and the index of institutional reforms in transition countries). The results show that there is a significant positive impact of institutional reforms on the economic growth of transition countries and Croatia, which creates preconditions that are essential for the future growth rate of the Croatian economy.
Highlights
Institutions and the state in the broadest sense have a strong impact on the economy due to the possibility of creating an enabling environment for economic growth and development
This paper explores the connection between institutions and exports in the observed transition countries
A higher level of institutional development is associated with higher levels of G.D.P. per capita
Summary
Institutions and the state in the broadest sense have a strong impact on the economy due to the possibility of creating an enabling environment for economic growth and development. Institutional changes aim at adapting to new challenges. In the scientific and professional literature, interest in discovering the causes of institutional differences between countries, as well as the ways in which institutions can affect economic performance, has increased. The two-way causal link of institutions and development has become a subject of interest, so that the possibility that institutions affect economic development is more emphasised, as well as the idea that economic development leads to qualitative institutional changes. With the development and progress of a country, the needs of existing organisations develop, and they will try to change the institutional framework to achieve even better performance
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