Instability and Volatility of Growth under Transition: An Application of the Neoclassical Growth Theory

Trajkova, Natasha (2013) Instability and Volatility of Growth under Transition: An Application of the Neoclassical Growth Theory. Doctoral thesis, Staffordshire University, UK.

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The aim of this thesis is to explore growth processes in transition economies (TEs) by analysing differences between growth patterns in the course of transition and the smooth growth paths characteristic of developed market economies. Accordingly, the thesis builds upon the neoclassical growth theory in the transition context to develop a modified theoretical model that conceptualizes transition as a non-linear process consisting of three distinct stages or regimes of growth: the crash or adjustment stage; the recovery stage; and the take-off stage. Namely, instead of describing transition as a movement along one steady state linear growth path, this new approach depicts transition as a process of radical adjustments or shifts between growth paths caused by big structural changes in the economy. This theoretical model is tested not only informally against the observed growth patterns under transition, but also through a series of econometric investigations: (1) Perron’s procedure for testing for structural breaks in the presence of a unit root in the data series; (2) a univariate Markov Switching Model (MSM) for assessing (a) whether or not the different hypothesized regimes exist in the data and (b) if different growth regimes do exist, both the instability between and volatility within growth regimes; and (3), a multivariate MS VAR model estimated as a small vector autoregression that repeats the univariate MSM investigation into growth regimes but conditional on both physical and human capital variables.
The empirical evidence supports the concept of non-linear growth characterised by structural changes and regime shifts. In particular, the univariate MS analysis suggests that most TEs (19 from 26) have passed through all three regimes or stages of transition, with variations across groups in terms of the recorded mean GDP growth rates and the volatility in each regime. Conversely, the multivariate analysis brings forward a somewhat different depiction. Namely, although generally confirming the idea of instability and volatility, the MS VAR analysis suggests that only an elite “few”, the five most developed TEs, now EU members have managed to pass through all three stages of transition, as identified in our theoretical model. They can be regarded as having completed their journey by becoming developed market economies In contrast; all the others recorded only two distinct regimes. This result is consistent with our theoretical model in identifying three main stages or growth regimes in the transition process.
Finally, the thesis appraises a new notion of transition as a process of dramatic non-linear changes that require correspondingly bold policies, particularly if the third regime leading to the developed market economy status is to be attained. Although this thesis does not prescribe specific policy recommendations, it does provide a particular perspective for policymaking, namely one oriented to long-run supply-side reforms.

Item Type: Thesis (Doctoral)
Additional Information: Mentor: Prof. Geoffrey Pugh
Subjects: Scientific Fields (Frascati) > Social Sciences > Economics and Business
Divisions: Doctoral Dissertations
Depositing User: Mr Dimitar Risteski
Date Deposited: 04 Apr 2020 17:17
Last Modified: 04 Apr 2020 17:17

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