Driving Urban Economic Growth – Evidence from Transition Economies

Input availability, quality of institutions and scale economies make a key contribution to the economy in terms of employment and growth. More recent studies explaining variability in urban economic growth have shifted their focus to urban areas of the developed and developing world with a very scarce research on urban growth drivers in transition economies. We attempt to bridge this gap and investigate variation in GDP per capita growth rates across 98 cities in European Eastern Neighbourhood during 1995-2008, utilizing a unique dataset and employing the System Generalised Method of Moments technique. More specifically, dynamic panel data study is undertaken to shed some light on the role of inputs, institutions, socio-economic and spatial characteristics of cities on urban economic growth. Not only do the results now provide consistent estimates of parameters, but they also support relevant theoretical insights. Our key findings suggest that differences in urban economic growth are largely explained by size of the local government, level of poverty and quality of institutions, such as property rights protection and freedom of doing business. There is also some evidence of `high unemployment – high GDP per capita trap’ and ‘high employment migration - low GDP per capita trap’ in FSU cities to be further investigated.