Bruno, RL; Douarin, E; Korosteleva, J; Radosevic, S; (2015) Technology Choices and Growth: Testing New Structural Economics in Transition Economies. Journal of Economic Policy Reform , 18 (2) 131- 152. 10.1080/17487870.2015.1013541.

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Abstract

We explore the relationship between development policies, finance and growth as approached by New Structural Economics (NSE) (Lin, 2012) with special reference to Transition Economies. On a sample of 164 economies for 1963-2009, our analysis generally confirms NSE’s propositions that the type of development policy, as captured by the Technology Choice Index (TCI), has significant effects on long-term growth. However, this differs for Transition Economies (TE) as a whole, and its sub-groups. Further to this, using a sample of 94 countries for 1985-2009, we provide a first empirical test of the relationship between growth, TCI and financial structure distortions and we show that there is a direct significant negative relationship between financial distortions and TCI on the one hand, and medium-term growth on the other hand. We also find that the negative effect of a higher ratio of TCI on medium-term growth could be partly mitigated, although not fully eliminated, by moderate level of financial sector distortions. This points towards some positive externalities of the complementarities between financial and industrial sector distortions, at least in the medium run. But again, transition economies are shown to differ from the rest of the sample investigated as in their case financial distortions are found to play a more pronounced direct negative effect on medium-term growth.

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