Academic journal article The European Journal of Comparative Economics

Institutional Change and Governance Indexes in Transition Economies: The Case of Poland

Academic journal article The European Journal of Comparative Economics

Institutional Change and Governance Indexes in Transition Economies: The Case of Poland

Article excerpt

Abstract

In the former communist countries, institutional change, i.e. transition towards market economy, is affected not only by introduction of law and formal institutions (change "by design"), but also by social norms, old values and habits (informal institutions). I present an empirical paper focusing on transition of the Polish Economy. I used a questionnaire which was administered to a sample of about 1000 Polish firms in order to verify the impact of economic institutions on the "residual productivity". Throughout the questionnaire I built six governance indexes. Then I tested the impact of the governance indexes on the productivity of firms. I observed that the economic performance of the eastern regions of Poland, where governance indexes are worse than western, are poorer than that of the western regions of Poland.

JEL Classification: D24, K42, O17, P37, Z13.

Keywords: formal and informal economic institutions, trust, transition economics, governance indexes, productivity.

(ProQuest Information and Learning: ... denotes formulae omitted.)

1. Introduction

There has been burgeoning literature within economics that discusses and analyses institutions (see North 1990; Nugent and Lin 1996; Nelson and Winter 1982; Jones and Hall 1998; Olson et al. 1998; Rodrik 1999; Robinson et al. 2001; Glaeser et al. 2004; Bardhan 2005). The attention of international organisations and policy makers has focused more on the importance of institutions for economic growth. Institutional economists, economic research centres and international organisations have built indexes of governance which measure an institutional quality of developing and advanced countries.

Generally, institutional indexes have common aims, namely measuring governance capacity and the quality of institutions. However, they use different methodologies and they are commissioned by different organisations such as the IMF, the World Bank, the EBRD and business clubs. Hence, these indexes are dissimilar because they depend on the commissioners' focus of research, for example, investment risk taxonomy, corruption level, the quality of bureaucracy, political stability, etc. Some indexes, such as EBRD indexes and indexes of Kaufmann, Kray and Zoido-Lobatio 2003, are essential for a comparison of formal economic institutions among countries and measuring the impact of formal institutions. However, very little attention has been paid to informal institutions.

In this paper I will propose some governance indexes which can capture the reality of transition economics in Central and Eastern European Countries (CEECs). They encompass different dimensions of institutional change occurring in those countries. I have built some indexes of governance which take into account elements that are evolving in transition economies, such as: property rights, habits, values, informal institutions, quality of bureaucracy, support of public institutions to business and a cost of institutional transformation. I think that formal and informal economic institutions captured by my indexes have a significant impact on the productivity as a "residual".

I have used a questionnaire administered to a significant sample of Polish firms in order to discover formal and informal spheres of economic institutions affecting an economic agent's behaviour. In particular, my indexes aim to capture the following concepts: 1) Support of public institutions for the firms; 2) Lobbying and rent seeking; 3) Persistence of informal institutions and previous habits; 4) Corruption; 5) Other official and unofficial costs coming from institutional transformation such as: acquiring new property rights, building new public institutions and governmental agencies, etc; 6) Harmonisation of formal economic institutions to EU law; 7) Impact of foreign direct investments; 8) Legal system and reinforcing of property rights; 9) Trust between econmic agents and, generally, trust in the public institutions. …

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