Technology choices and growth: testing New Structural Economics in Transition Economies

Figures & data

Table 1. Hypotheses.

Type of relationships	Hypotheses
(1) TCI & growth	H1.1: On average, a high value of TCI is negatively related to long-term growth
	H1.2: Transition Economies (TEs) differ from the rest of the sample: it is less likely that a negative relationship between TCI and growth will be identified for them, and we expect some further differences to be identified for CEEB vs. CIS in the way TCI relates to growth
(2) Financial distortions, TCI and growth	H2.1: On average, a higher value of TCI and financial structure gap will independently adversely affect medium-term growth
	H2.2: A moderate increase in the deviation of the actual financial structure from its estimated optimal level (in either direction regardless whether a shift occurs towards a more bank-based or market-based sector) will positively moderate a negative effect of TCI on growth in the medium run
	H2.3: In Transition Economies, financial sector distortions are expected to have a more pronounced negative effect than in the rest of the world; and their effect to be stronger than the TCI effect in this region. However, we also hypothesize that given enterprise restructuring, and entry of new firms, a moderate increase TCI, possibly attributed to efficiency gains as a result of industrial restructuring, is likely to have a positive moderating effect on FSG-growth relationship

Table 2. Estimating the effect of TCI on growth: robust regression results.

Dependent variable: growth rate of GDP pc (constant 2000 US$)	Model 1a	Model 1b	Model 1c
Ln TCI	−0.011***	−0.007***	−0.006***
	(0.002)	(0.002)	(0.002)
Ln_gdp_pc_start	−0.004***	−0.007***	−0.007***
	(0.001)	(0.001)	(0.001)
Ln_PopulationTotal start		0.003***	0.003***
		(0.001)	(0.001)
Distance to equator		0.006	0.011
		(0.008)	(0.008)
Landlocked		−0.004	−0.004
		(0.003)	(0.003)
Population growth		−0.755***	−0.395***
		(0.094)	(0.117)
Ln Average years of schooling Barro Lee		0.004	0.010***
		(0.003)	(0.003)
Trade Openness		0.013***	0.014***
		(0.002)	(0.002)
Legal origin_uk_laporta		0.003	0.000
		(0.004)	(0.004)
Legal origin_fr_laporta		0.005	0.003
		(0.004)	(0.004)
Legal origin_sc_laporta		0.008	0.005
		(0.006)	(0.005)
Constant	0.062***	0.024	0.013
	(0.009)	(0.015)	(0.015)
Decade (time) fixed effects	No	No	Yes
Observations	459	418	418
Adjusted R^2	0.076	0.262	0.316

Note: Standard errors reported in parentheses.

Source: World Bank Financial Structure Data-set (2012), WB WDI 2012 edition; UNIDO.

^* Denotes significance at the 10% level, respectively.

^** Denotes significance at the 5% level, respectively.

^*** Denotes significance at the 1% level, respectively.

Table 3. Estimating the effect of TCI on growth for TEs: robust regression results.

Dependent variable: growth rate of GDP pc (constant 2000 US$)	Model 2a	Model 2b	Model 2c	Model 3a	Model 3b	Model 3c
Ln TCI	−0.012***	−0.008***	−0.007***	−0.011***	−0.009***	−0.007***
	(0.002)	(0.002)	(0.002)	(0.002)	(0.002)	(0.002)
Ln TCI * TE	0.019**	0.016**	0.013*
	(0.008)	(0.007)	(0.007)
TE	−0.001	−0.023***	−0.021***
	(0.004)	(0.005)	(0.005)
Ln TCI * CEE				0.009	0.023**	0.017*
				(0.011)	(0.010)	(0.009)
Ln TCI * CIS				−0.014	−0.001	−0.005
				(0.019)	(0.014)	(0.013)
CEE				−0.007	−0.024***	−0.022***
				(0.005)	(0.006)	(0.006)
CIS				0.036***	−0.012	−0.006
				(0.014)	(0.011)	(0.011)
Ln_gdp_pc_start	−0.004***	−0.010***	−0.010***	−0.004***	−0.010***	−0.010***
	(0.001)	(0.001)	(0.001)	(0.001)	(0.001)	(0.001)
Ln_PopulationTotal start		0.003***	0.003***		0.003***	0.003***
		(0.001)	(0.001)		(0.001)	(0.001)
Distance to equator		0.014	0.018**		0.013	0.018**
		(0.008)	(0.008)		(0.008)	(0.008)
Landlocked		−0.007**	−0.006**		−0.007**	−0.006*
		(0.003)	(0.003)		(0.003)	(0.003)
Population growth		−0.831***	−0.486***		−0.832***	−0.472***
		(0.096)	(0.122)		(0.097)	(0.124)
Ln Av. years of schooling Barro Lee		0.008**	0.014***		0.008**	0.014***
		(0.003)	(0.004)		(0.003)	(0.004)
Trade Openness		0.015***	0.016***		0.015***	0.016***
		(0.002)	(0.002)		(0.002)	(0.002)
Legal origin_uk_laporta		−0.007*	−0.009**		−0.008*	−0.011**
		(0.004)	(0.004)		(0.005)	(0.005)
Legal origin_fr_laporta		−0.005	−0.006		−0.005	−0.007
		(0.004)	(0.004)		(0.005)	(0.004)
Legal origin_sc_laporta		−0.004	−0.006		−0.004	−0.007
		(0.006)	(0.006)		(0.006)	(0.006)
Constant	0.062***	0.050***	0.038**	0.058***	0.051***	0.040**
	(0.010)	(0.016)	(0.016)	(0.010)	(0.016)	(0.016)
Decade (time) fixed effects	No	No	Yes	No	No	Yes
Observations	459	420	420	458	418	418
Adjusted R^2	0.088	0.287	0.337	0.105	0.284	0.333

Note: Standard errors reported in parentheses.

Source: World Bank Financial Structure Data-set (2012), WB WDI 2012 edition; UNIDO.

^* Denotes significance at the 10% level, respectively.

^** Denotes significance at the 5% level, respectively.

^*** Denotes significance at the 1% level, respectively.

Figure 1. The relationship between TCI and Financial Structure Gap, country averages (median).

Source: World Bank Financial Structure Data-set (2012 edition), UNIDO; The data are plotted based on the exact observations used in the SYS GMM estimation of the growth-TCI-FSG relationship (Table 4).

Table 4. SYS GMM regression results: Estimating the effect of TCI and financial structure gap on medium-term growth.

Explanatory variables	(1)	(2)
Ln_gdp_pc_start	−0.010**	−0.010**
	(0.004)	(0.004)
Ln_population_start	0.005***	0.003**
	(.001)	(.001)
Population growth	−0.113	−0.073
	(.117)	(.177)
Ln TCI2	−0.017*	−0.006
	(0.009)	(0.008)
FinStr gap	−0.005*	0.000
	(0.003)	(0.003)
Ln TCI_x_FinStr_gap	0.005**	0.001
	(0.002)	(0.002)
Landlocked	−0.005	−0.007
	(0.007)	(0.006)
Distance from equator	0.004	0.028
	(0.015)	(0.019)
Legal origin UK	−0.002	−0.006
	(0.009)	(0.011)
Legal origin France	0.000	−0.004
	(0.009)	(0.01)
Legal origin Scandinavia	0.005	−0.005
	(0.011)	(0.010)
Average years of schooling	0.016	0.022*
	(0.011)	(0.013)
Trade openness	0.012**	0.013**
	(0.005)	(0.005)
TE	–	−.004
		(.015)
TE_x_FinStr gap	–	−.008*
		(0.004)
TE_x_TCI2	–	−.035
		(.027)
TE_x_FinStr gap_x_TCI2	–	.025
		(.018)
Time fixed effects	Yes	Yes
Number obs.	331	331
F st.	16.12	23.84
Pr > z AR(1)/Pr > z AR(2)	0.00/0.62	0.00/0.63
Hansen test of over-identification restriction, χ^2 (Pr. > χ^2)	.293	.931

Source:

World Bank Financial Structure Data-set (2012 edition), WB WDI (2012 edition); UNIDO.

Notes: Dependent variable: growth (approximated by the difference in logarithms of real GDP pc at US PPP dollars at current period and previous period), averaged over 5-year non-overlapping periods of time. Level of statistical significance is * 0.1%, ** 0.05% and *** 0.01%. Standard errors (in parentheses) are robust to heteroskedasticity. The figures reported for the Hansen test and Difference Hansen test are the p-values for the null hypothesis: valid specification. Note: the autocorrelation test shows that the residuals are an AR (1) process which is what is expected. The test statistic for second-order serial correlation is based on residuals from the first-difference equation.

Figure 2. The marginal effect of TCI on growth conditioned on financial structure gap, whole sample.

Source: World Bank Financial Structure Data-set (2012 edition), UNIDO; The marginal effect results are calculated based on obtaining the derivate of the function of growth with respect to TCI, conditioned on different values of FSG, using the SYS GMM estimation of the growth-TCI-FSG relationship (Table 4, specification 1). The dotted lines show the 95% significance confidence interval. Where both lower and upper significance intervals fall either below or above zero, the marginal effects should be read as significant.

Figure 3. The marginal effect of FSG on growth conditioned on TCI, TEs.

Source: World Bank Financial Structure Data-set (2012 edition), UNIDO; The marginal effect results are calculated based on obtaining the derivate of the function of growth in reference to FSG, conditioned on different values of TCI, using the SYS GMM estimation of the growth-TCI-FSG relationship in the context of TE (Table 4, specification 2). The dotted lines show the 95% significance confidence intervals. Where both lower and upper significance intervals fall either below or above zero at the same time, the marginal effects should be read as significant.