The Relationship between Policies and Growth in Transition Countries

This paper combines Hendry's general to specific procedure and Leamer's Extreme Bounds analysis to assess the robustness of the relationship between growth in transition countries and a set of variables included in other studies. The results indicate a robust relationship between inflation and growth. A significant long-term effect of liberalization on growth is not found, which throws doubt on previous empirical studies of the relationship between liberalization and growth. However, the long-term benefits from liberalization may be indirect, via macro stability. Robustness tests also throw doubt on the effect of fiscal and exchange rate policies on growth