The Impact of Macroeconomic and Institutional Factors on Economic Growth in the CEE-4 Countries

Abstract

The aim of the study is to examine the main factors driving economic growth in the CEE-4 countries since the transition with the main focus on macroeconomic policies and institutions. The building of a market economy in the region required deep macroeconomic reforms and the creation of a wide range of institutions and business practices needed to support those reforms. Since the collapse of communist regimes, the CEE-4 countries have adopted in the early 1990s a set of policy principles focused on fiscal discipline, interest rate liberalisation, trade and financial liberalisation, privatisation, deregulation and openness to direct foreign investment. Macroeconomic stability by itself, however, does not ensure high rates of GDP growth. In most cases, sustained high rates of growth also depend upon key structural measures, such as regulatory reform, civil service reform, improved governance, and banking sector reform. Institutions of central planning in the CEE-4 region were one of the key barriers to growth prior to the transition. As the development of institutions has been necessary to support the well-functioning market economies in the CEE-4 region, the study also examines deep factors of production – institutions – in addition to the demand-side and the supply-side factors affecting output.