Annotation. Economic growth has long been used as a measure of the socio-economic welfare of the country. Economic growth is impacted by various factors, and is defined as a complex process with many determinants. The aforementioned circumstance is supported by the example of transitional economies, where the cyclical nature of economic growth in the context of economic transformation has historically been the most acute. The majority of these countries are still engaged in the implementation of relevant reforms for the development sustainable market economy.

It is proposed within the framework of this study to evaluate the main determinants of economic growth (e.g. inflation, structural reforms, government spending, investments, price liberalization, trade and exchange regimes, market entry rate (competition policy), and privatization). Using a comprehensive model based on data from 1996 to 2014 for 25 transition economies. According to the outcomes of the research: the majority of the assessed determinants of economic growth are statistically significant; The impact of inflation and government spending on GDP is negative; The impact of structural reforms and price liberalization on GDP was negative in 1999-2007 and positive in 2007-2014; the exchange regime has both positive and negative effects on GDP in individual cases, the similar situation is for privatization; Investments impact on GDP is significant, the estimated coefficient is between 0.20-0.24. Assessed determinants of economic growth for 2007-2014 have improved compared to 1999-2007. 

Keywords:  Economic growth, determinants, transition economies, panel model, reforms. 

Introduction[1]

All other things being equal, one might think that researching this issue is less relevant since the transition period for the countries included in this group began about 30 years ago [IMF, 2000,p.89] and numerous publications have addressed this subject [Svejnar,2002; Blanchard, 1997; Kornai, 1999; Brada, King, Kutan, 2000; Campos, Coricelli, 2002; Gerard, 2000, etc.]. However, at the same time, it is difficult to consider the period of transitions in these countries completed. Moreover, the transformation of the economy and the establishment of the market system, as well as the promotion of economic freedom, remain the main targets of economic policy. The recent past demonstrates that for the countries of the transition economy: regardless of the common starting point, the factors determining economic growth vary by country; The subject of discussion is the classification and assessment of countries in the "transition economy" group; there are now more factors that influence economic growth, and their variety is notable; the role of determinants of economic growth in the initial period of the reforms and subsequent years, etc., is different. The given partial list emphasizes present study aims to evaluate the determinants of economic growth in the case of 25 transition economies based on a model applying the data of 1996-2014 years[2].           

            1. Literature Review

The evolution of economic growth theories is related to the expansion of its determinants [Piętak, 2014; Kawalec, 2020; Shachmurove, Zilberfarb, 2020; Joffe, 2017, etc.]. The fundamental models developed in the 1950s and 1960s, in particular, emphasize labor, capital, and technical progress as the key drivers of economic growth [Solow, 1956; Swan, 1956, Mankiw, Romer, Weil, 1992]; In the 1980s, the state economic policy was added to this list [Romer, 1990; Barro, Sella-i-Martin, 1995; Olson,  Sarna,  Swamy, 2000]; The following stage of development of economic growth models related to taking into account, among others, institutions, private property, the rule of law, and corruption [North, 1989; Acemoglu, Johnson, Robinson, 2005]. Investments, human capital, monetary and fiscal policy, private property protection indices, tax burden, trade openness, political stability, structural reforms, macroeconomic stability, and trade openness are other factors that influence economic growth [Havrylyshyn, Wolf, 1999; Campos, Coricelli, 2002; Workie, 2005; Mervar, 2003;  Havrylyshyn, Izvorski, Rooden, 1998; Horowitz, 2004, etc.].It is clear that economic growth is a complex process with many determinants [Bedianashvili,2022]. However, economic theory does not give us a consensus view on the "correct" model specifications [Havrylyshyn, Izvorski, Rooden, 1998, p.13].

One of the current concerns, particularly in transition economies, is the examination of the factors that influence economic growth. What factors impact on economic growth? Different factors have been evaluated in the research conducted in search of an answer to this question, although they can be grouped by common determinants:

• o Structural reforms and liberalization [de Melo, Denizer, Gelb, 1996;  De Melo, Denizer, Tenev, 1997; Fischer, Sahay, Végh, 1996a, 1996b; Hernández-Catá 1997; Berg, Sahay, Zettelmeyer, 1999];
• o Macroeconomic stability [Fischer, Sahay, Végh, 1996a, 1996b; Hernández-Catá, 1997; Loungani, Sheets,1997; Christoffersen, Doyle,  1998; Berg, Sahay, Zettelmeyer, 1999];
• o Budget deficit [Berg, Sahay, Zettelmeyer, 1999; Fischer, Sahay, Végh, 1996a, 1996b];
• o Initial conditions [de Melo, Denizer, Gelb 1996; De Melo, Denizer,  Tenev, 1997; Heybey, Murrell 1998; Berg, Sahay, Zettelmeyer, 1999].

On the one hand, the authors emphasize the different environmental conditions between countries; on the other, they reveal common factors that influence economic growth in all countries. Such (independent) factors are structural reforms, the initial condition, inflation (current and lagged), budget spending/deficit (current and lagged), war (a dummy variable), ruble zone, an exchange rate (dummy variable), collapse of the Soviet Union (a dummy variable), and other factors. In addition, the determining factors of economic growth in countries with transition economies have been widely substantiated and explained, on which a significant number of scientists have agreed, however, the question of the relative importance of these factors remains controversial [Mervar, 2003].

Investments are a key factor in boosting economic growth, according to economic growth theories. However, in transition economies, which are distinguished by an ineffective inherited system, the importance of investments in the short run may be less significant for economic growth than in industrialized nations. Given that characteristic, macroeconomic policies targeting structural changes and the protection of private property are given more importance in the evaluation of economic growth in transition economies than investments [Havrylyshyn, Izvorski, Rooden, 1998, p.24].                                    

                2. Model Selection 

The model of transition to a market economy and the list of nations included in the category of transition economies are controversial topics in economics[3]. The most famous example of a transitional economy in economic history is the member states of the former Soviet Union, which found themselves in the group of transitional economy countries as soon as the countries were decentralized. Countries with transition economies are those that are implementing macroeconomic reforms to change the way the economy is run. Traditionally, this involves structural reforms to transition from a state-run economy to a market economy [Round, 2009]. One of the key reasons for economic reforms in transition economies was the existence of an inefficient economy in which 90% of economic growth was achieved at the expense of increasing resources (land, labor force, and capital). The economic model of transition to a market economy took place in those countries in a variety of ways [Havrylyshyn, 2007,p.6]. However, in the beginning, all country characterized by a substantial decline in economic growth rate (Table 1). The highest rate of growth in these countries was in 1990 (Turkmenistan: 35.4% ), the highest rate of decline in 1992 (Georgia: -44.9%), and the first time whatever in all countries observed economic growth was in 2000. Statistics for this year are all positive.

A separate author attributes the abrupt decline in economic growth to the "transformation" recession and notes the occurrence of the following changes: the shift from a seller's market to a buyer's market (liberalization of prices), a sustainable budget system (privatization, a substantial reduction in state aid and expenses), which, with its behavior oriented toward a market economy, promotes the profit maximization of all economic actors [Kornai, 1994]; transferring resources from existing to new endeavors and preserving existing businesses during restructuration [Blanchard, 1997]; the initial condition also considered as an important determinant [De Melo, Denizer, Gelb,1997; Fischer, Sahay, Carols, 1998].

Table 1. Economic Growth in Transition Economies (1989-2000)

Country	1989	1990	1991	1992	1993	1994	1995	1996	1997	1998	1999	2000
Albania	9.8	-9.6	-28.0	-7.2	9.6	8.3	13.3	9.1	-10.9	8.8	12.9	6.9
Armenia			-11.7	-41.8	-8.8	5.4	6.9	5.9	3.3	7.3	3.3	5.9
Azerbaijan			-0.7	-22.6	-23.1	-19.7	-11.8	1.3	5.8	10.0	7.4	11.1
Bulgaria	-3.3	-9.1	-8.4	-7.3	-1.5	1.8	2.9	5.2	-14.1	3.8	-8.4	4.6
Belarus			-1.2	-9.6	-7.6	-11.7	-10.4	2.8	11.4	8.4	3.4	5.8
Czechia			-11.6	-0.5	0.1	2.9	6.5	4.3	-0.5	-0.4	1.4	4.0
Estonia								4.9	13.1	4.3	-0.4	10.1
Georgia	-7.2	-14.8	-21.1	-44.9	-29.3	-10.4	2.6	11.2	10.5	3.1	2.9	1.8
Croatia								6.3	6.2	2.3	-0.7	2.9
Hungary				-3.1	-0.6	2.9	1.5	0.1	3.1	3.9	3.1	4.5
Kazakhstan			-11.0	-5.3	-9.2	-12.6	-8.2	0.5	1.7	-1.9	2.7	9.8
Kyrgyz Republic	2.8	5.7	-7.9	-13.8	-15.5	-20.1	-5.4	7.1	9.9	2.1	3.7	5.4
Lithuania								5.2	8.3	7.5	-1.1	3.7
Latvia								2.6	8.8	6.3	2.8	5.7
Moldova								-5.9	1.6	-6.5	-3.4	2.1
North Macedonia			-6.2	-6.6	-7.5	-1.8	-1.1	1.2	1.4	3.4	4.3	4.5
Poland			-7.0	2.5	3.7	5.3	7.1	6.1	6.4	4.6	4.7	4.6
Romania			-12.9	-8.8	1.5	3.9	6.2	3.9	-4.8	-2.0	-0.4	2.5
Russian Federation		-3.0	-5.0	-14.5	-8.7	-12.6	-4.1	-3.8	1.4	-5.3	6.4	10.0
Slovak Republic					1.9	6.2	5.8	6.6	5.9	4.1	-0.1	1.2
Slovenia								3.2	5.0	3.3	5.3	3.7
Tajikistan	-6.5	-0.6	-7.1	-29.0	-16.4	-21.3	-12.4	-16.7	1.7	5.3	3.7	8.3
Turkmenistan	-4.3	35.4	-4.6	-15.0	1.5	-17.3	-7.2	6.7	-11.4	7.1	16.5	5.5
Ukraine	3.9	-6.3	-8.7	-9.9	-14.2	-22.9	-12.2	-10.0	-3.0	-1.9	-0.2	5.9
Uzbekistan	3.1	1.6	-0.5	-11.2	-2.3	-5.2	-0.9	1.7	5.2	4.3	4.3	3.8
All countries
Average	-0.2	-0.1	-9.0	-13.8	-6.6	-6.2	-1.1	2.4	2.6	3.3	3.0	5.4
Median	-0.3	-3.0	-7.9	-9.8	-7.5	-5.2	-0.9	3.9	3.3	3.9	3.1	4.6
Highest	9.8	35.4	-0.5	2.5	9.6	8.3	13.3	11.2	11.4	10.0	16.5	11.1
Lowest	-7.2	-14.8	-28.0	-44.9	-29.3	-22.9	-12.4	-16.7	-14.1	-6.5	-8.4	1.2

source: www.worldbank.org.

note: Countries selected based on EBRD “transition indicators”. 

The reforms implemented in transition countries cover almost every aspect of a society's socioeconomic life. Therefore, for the evaluation of the correlation between the different types of reforms and the socioeconomic welfare of the society, it is preferable to use the panel data model, which gives the possibility to evaluate the same cross-sectional units during a given period. As is well known, the panel data set consists of time series of each cross-sectional member (such a model is more flexible and allows for the modeling of behaviors expressed by countries). The following two main procedures are used to analyze the panel model: Fixed affect - the use of the mentioned method is appropriate when dealing with a large number of countries to be evaluated, whose data are different from country to country [Greene, 2002]; Random effect - in this case, it means that the time-constant unobservable factors included in the panel data model are uncorrelated with the explanatory variables in the model at each period. Although it cannot "explain" economic growth, regression analysis is the greatest method for estimating [Harberger, 1998].

            A panel model of economic growth [Mankiw, Romer, Weil, 1992; Islam, 1995; Barro, 1997; Barro, Sala, 2004, etc.]:

                             ,                           (1)

            where,  is the dependent variable ((i) the country's GDP growth in the given (t)  period);- main explanatory variables that have a significant impact on the dependent variable;  -  unobservable factors of the country that do not change over time;   – specific time factor (dummy variable); - error (innovation) variable. 

            The current study relies on the findings of Havrilishan, Izvorsky, and Roden research[4], which contains the components of model (1), to evaluate the factors that influence economic growth in transition economies. In light of this, the following basic model has to be assessed:

           where, Y-GDP real growth (in %); LNP-inflation rate; RI - structural reforms index[5];  g  - Government expenditure (percentage share in GDP). Inflation has a negative impact on GDP, and structural reforms have a positive impact on GDP [Ari., Pula., Sun, 2022, 2021; Egert, 2017]. A different study examined the connection between government spending and GDP in transition economies was positively correlated. The reforms implemented in these economies also demonstrate that the Keynesian policy has a favorable impact given the right budgetary conditions, but that the effectiveness of government spending declines as the financing of "social" initiatives rises [Havrylyshyn, Izvorski, Rooden, 1998, pp.13-15].

            In addition, the fiscal policy, in particular the increase in the average tax rate, can affect aggregate demand both positively and negatively. The nature of the mentioned impact is determined by the ratio between the marginal propensity to consumption of the household and the marginal propensity to purchase of the government. Depending on the countries and time period, this ratio is usually different [Ananiashvili, Bardavelidze, 2018].

            (2) model includes a necessary but insufficient number of determinants of economic growth. The implemented reforms and macroeconomic challenges of transition economies point to the importance of a detailed assessment of other factors influencing economic growth [Tabaghua, 2019, pp. 60-89]. Such factors include: investments; price liberalization; trade and exchange policies; Market entry rate (competition policy) and privatization. The given circumstances lead us to expand (2) model[6], which has the following form:

             

              where, LIP - price liberalization index; LEN - market entry rate (competition policy);  LEX - trade and foreign exchange regime; LSP - Privatization Index (average date of large and small scale privatization indicators); IN - investments (% share in GDP).

            Theoretically, the calculated coefficients of these parameters (e₀, e₁, e₂;f₀ f₁,f₂,; ,c₀ c₁,c2; ,g₀,g₁,g₂; d₀,d₁,d₂) are positive, nevertheless, given the characteristics of transition economies, some of them may turn out to be negative when the factors examined with a time lag.

            Within the research, the relevant data from the European Bank for Reconstruction and Development (EBRD), the World Bank (WB), and the International Monetary Fund (IMF) were used. 

            3. Applied Assessment and Results

            3.1. Assessment

(3) model was assessed by applying data from 1996 to 2014 and a list of the 25 countries (table 1) with transition economies [Tabaghua, 2019. pg.60-89]. where GDP (Y) is the dependent variable and LNP, RI, g, LIP, LEN, LEX, LSP, and IN are the independent variables. The period of analysis was split into two parts: 1999 - 2007 and 2007-2014 to analyze those determinants in different timeframes.

It should be mentioned that several versions of (3) models and their variations are taken into consideration to expand the analyses; these models varied in the extent to which determinants were included. Additionally, for the various possibilities, applied fixed and random-effect approaches.

To evaluate the statistical significance of the models, the following are used: normal and adjusted  and  coefficients, Darbin-Watson statistics (DW); F-statistics, and the Hausman test. 

            3.2. Results

Summarize the results of the evaluations of the (3) model different variations:

Random effects model.  In total  9 models were analyzed (Table 2)[7], among which (A6) model is characterized by sufficient statistical estimates, where inflation (LNP), government spending (g), price liberalization index (LIP), competition policy (LEN), trade and foreign exchange regime (LEX)  are explanatory factors.  Government expenditure (g), the competition policy (LEN), and investment (IN) were statistically significant among these variables. Additionally, the effect of government spending on GDP is statistically significant in the first period but declines in the second; with one lag delay, the effect of competition policy on GDP is statistically significant; and the impact of investments on GDP is more stable in comparison to all other factors and significant for in case of all three lags. It is important to notice that the predicted coefficient sign of various determinants does not coincide with the general theoretical topics[8].

          A general analysis of the additional models and variables is presented in Table 2 shows the following:

• o The negative impact of inflation (LNP) on GDP is confirmed in all models;
• o The structural reforms index (RI) has a positive impact on GDP both in the initial period and in the long run;
• o According to the majority of models, the long-run impact of government spending (g) on GDP is negative;
• o A mixed picture  occurred  in case of the Price Liberalization Index (LIP) and trade and foreign exchange regime (LEX) effects on GDP;
• o In most models, the market entry rate (LEN) gives a statistically significant effect at one lag, and this effect on GDP is typically negative;
• o Privatization indexed (LSP) has a positive impact on GDP in the initial period, while the long-run effect is negative;
• o In all models, the underlined positive impact of investments on GDP in the long- run.

Initial conditions.  In some studies, the initial condition of the country is also considered as a determining factor for the success or failure of the economic reforms implemented in countries with transition  economies [Fischer, Sahay, 2004].

The first structural analysis of the initial situation was carried out by De Mello, Denizer and Tenev[9], using the following 11 criteria: 1. Location of the country[10]; 2. Indicator of economic growth of the past period; 3. Differences between countries with independence obtained before or after 1989; 4. Amount of natural resources; 5. Level of industrialization; 6. Urbanization; 7. Gross Domestic Product (GDP) per capita in 1989; 8. Inflation; 9. Trade dapendence between communist countries; 10. Shadow market and exchange rate; 11. The number of years in the communist system. As the above shows, economic or non-economic indicators are used to evaluate the initial situation, which are found in different combinations and contents in individual studies [Godoy, Stiglitz, 1992, pp.6-9].

Taking into account the above, for the assessment of the initial situation in countries with a transition economies, we used factors that can be considered as important macroeconomic indicators in the period of transformation to market economy: Price Liberalization Index (LIP); Competition Policy (LEN); Trade and Exchange System (LEX); Privatization index (average value of large and small scale privatization indicators) (LSP); Investments (IN). With different combinations of these factors, we estimated 11 models using fixed effects, which is one of the tried and tested methods for this issue [De Melo, Denizer, Tenev, 1997; Heybey, Murrell 1998; Berg, Sahay, Zettelmeyer, 1999]. Thus, Azerbaijan, Hungary, and Kazakhstan are characterized by the highest index of the initial condition, while Bulgaria, Hungary, Latvia, Lithuania, Georgia, Moldova, Poland, Romania, and Russia are characterized by the lowest. In the majority of countries, the above-mentioned determinants are no longer affecting GDP (Table 3). In addition, it is clear that the influence of those factors on GDP was quite high in the initial period of reform. 

Table 2. Assesment of GDP growth selected determinants  (random effect, 1998-2014)

Table 3. Initial conditions (fixed effect, 1998-2014)
	A1	A2	A3	A4	A5	A6	A7	A8	A9	A10	A11
Albania	-0.90	0.31	-0.30	0.71	0.83	-0.62	-1.98	-0.65	-1.81	-2.25	-0.43
Armenia	-1.88	2.05	1.43	2.65	2.42	0.99	-3.21	2.10	-1.36	-3.73	2.05
Azerbaijan	2.07	4.11	4.63	5.60	5.32	4.69	2.20	4.32	3.03	3.55	5.69
Belarus	2.17	-1.19	-0.32	-0.53	-0.03	0.86	3.24	-3.56	-0.38	4.87	0.13
Bulgaria	0.51	-0.05	-0.04	-0.55	-0.45	-0.38	0.56	-7.18	0.30	-0.31	-1.33
Croatia	0.45	-2.53	-2.79	-3.33	-3.00	-3.01	0.20	-2.33	-0.33	0.12	-3.12
Estonia	2.30	0.78	0.60	-0.78	-0.97	0.38	2.81	0.19	1.54	2.16	-1.57
North Macedonia	-1.83	-1.89	-2.60	-1.65	-1.64	-2.90	-2.78	0.33	0.12	-2.91	-0.50
Georgia	-2.27	1.08	0.28	1.09	1.12	-0.20	-3.50	0.54	-2.42	-4.28	0.01
Hungary	4.63	-0.19	-0.28	-2.00	-2.10	-0.60	5.51	-0.33	3.52	4.89	-2.47
Kyrgyz Republic	-0.75	0.08	-0.56	0.33	0.28	-1.02	-1.61	-0.21	-1.04	-2.10	-0.68
Latvia	1.86	0.42	0.46	-0.28	-0.45	0.17	2.27	-0.08	1.26	2.05	-1.27
Lithuania	0.99	0.37	0.62	-0.69	-0.69	0.47	1.57	1.10	1.72	1.08	-0.65
Moldova	-0.23	-1.43	-1.34	-1.37	-0.56	-1.56	-0.73	-1.17	-0.84	-0.59	-1.35
Poland	0.59	0.68	0.81	-0.68	-0.69	0.59	1.11	0.99	1.36	1.14	-0.85
Romania	-1.09	-1.20	-0.87	-1.38	-1.12	-1.31	-0.74	-0.76	-0.61	-1.127	-2.04
Russian Federation	-0.37	-0.77	-0.80	-0.84	-1.07	-0.51	0.23	-0.78	-0.08	0.22	-0.44
Slovak Republic	2.95	1.12	1.04	-0.69	-0.62	0.90	3.46	1.44	2.73	2.88	-0.64
Slovenia	1.36	-1.69	-1.81	-2.62	-2.08	-2.02	1.27	-1.64	0.55	1.66	-2.43
Tajikistan	-2.77	0.83	1.10	2.28	2.09	1.44	-3.05	1.34	-1.22	-2.45	2.91
Turkmenistan	-2.56	2.88	3.90	6.37	5.83	5.40	-2.20	4.33	0.35	-0.48	9.41
Ukraine	-0.32	-2.94	-2.61	-2.43	-2.7	-2.43	0.46	-2.28	-0.07	0.63	-1.91
Uzbekistan	-0.96	-1.17	-0.57	0.035	-0.25	0.70	-0.34	-2.35	-2.50	-0.35	1.26
Kazakhstan	-3.94	0.36	0.02	0.80	0.59	-0.01	-4.74	-0.52	-3.82	-4.70	0.27

Table 4. Panel model of GDP growth(1999-2007)
variable	A1	A2	A3	A4	A5	A6
LNP	-0.02 (-1.87)	-0.02 (-1.93)	-0.01 (-1.18)	-0.02 (-2.41)	-0.02 (-2.31)	-0.02 (-2.23)
RI	-1.11 (-0.66)			-3.55 (-2.26)	-3.08 (-3.37)
g	-0.19 (-4.15)	-0.20 (-4.40)	-0.21 (-4.69)			-0.23 (-5.25)
LIP						-2.89 (-1.66)
LEN	-0.73 (-2.60)	-1.31 (-2.35)				1.13 (0.15)
LEX			-0.40 (-0.47)			0.85 (0.97)
LSP				0.23 (0.22)		-0.61 (-0.76)
IN	0.24 (5.83)	0.23 (5.68)	0.21 (5.07)	0.23 (5.68)	0.23 (5.68)	0.20 (5.17)
R2	0.18	0.18	0.16	0.12	0.12	0.21
2	0.16	0.16	0.15	0.11	0.11	0.19
F-statistics	9.53	11.93	10.55	7.80	10.27	8.08
DW	1.48	1.47	1.44	1.36	1.38	1.40