Why is economic growth lagging behind in former Comecon republics?

Abstract

Since 1990, former Comecon countries have been poorer than their neighbors in Western Europe and, over the past 30 years, convergence has been weak. Economic theory and previous research suggest that the region should have approached similar GDP per capita levels more than they have done. This study will therefore seek to explain why the differences still exist. Building on existing research on growth, the thesis asks: Why economic growth is lagging behind in former Comecon republics, and what can explain the internal differences? Using quantitative data, we attempt to analyze the relationship between more and less traditional explanatory variables for growth and GDP per capita through a linear regression. Our results show that capital and labor in particular are very important factors for growth in the region. It is also clear that corruption has a negative effect on GDP per capita, while a larger proportion of high-educated citizens promote growth. The parameters we use to measure institutional conditions do not have a significant impact on GDP per capita in the regression. However, we believe that this plays an important role, both to explain the lack of convergence, but also to the internal differences in the region.