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Economic Effects of Post-Socialist Constitutions 25 Years from the Outset of Transition

The Constitutional Political Economy Approach

by Katarzyna Metelska-Szaniawska (Author)
Monographs 194 Pages
Series: Polish Studies in Economics, Volume 7

Table Of Content

  • Cover
  • Title
  • Copyright
  • About the author
  • About the book
  • This eBook can be cited
  • Table of Contents
  • Introduction
  • Chapter 1. Constitutions and economic policy – the theoretical nexus
  • 1.1 The Constitutional Economics research program
  • 1.2 Persson and Tabellini’s (2003) theoretical framework
  • 1.3 Future prospects and challenges faced by empirical verification
  • 1.4 Constitutions and economic reforms in transition
  • Chapter 2. Post-socialist constitutions in a nutshell
  • 2.1 Executive-legislature relations
  • 2.2 Constitutional rights and freedoms
  • 2.3 Enforcement mechanisms
  • 2.4 Summary
  • Chapter 3. Regression analyses of economic effects of post-socialist constitutions
  • 3.1 The empirical model
  • 3.2 Dependent variable
  • 3.3 Constitutional variables
  • 3.4 Estimation results
  • 3.5 Conclusions
  • Chapter 4. The synthetic control approach to estimating economic effects of post-socialist constitutions
  • 4.1 The synthetic control method
  • 4.1.1 Advantages of synthetic control
  • 4.1.2 Requirements and potential drawbacks
  • 4.1.3 Making inferences with the synthetic control method
  • 4.1.4 Selected applications of the synthetic control method
  • 4.2 Study design
  • 4.3 Baseline results (country studies)
  • 4.4 Evaluating and explaining the reform gaps
  • 4.5 Conclusions
  • Chapter 5. An evolutionary perspective on the role of post-socialist constitutions
  • 5.1 The role of the constitution from an evolutionary perspective
  • 5.1.1 Crucial rules
  • 5.1.2 Stability vs. flexibility of the constitution
  • 5.1.3 Imperfect incentives
  • 5.2 Empirical tests
  • 5.2.1 Introducing direct democracy mechanisms
  • 5.2.2 Support for the constitution
  • 5.3 Conclusions
  • Conclusions
  • References
  • Appendices
  • Appendix 1. Additional tables
  • Appendix 2. Additional figures
  • Appendix 3. Description of variables and data sources
  • Appendix 4. Unit weights and predictor balance for the synthetic control study
  • List of Tables
  • List of Figures

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Introduction

During the last ca. 15 years economists provided numerous theoretical and empirical confirmations of a significant role of constitutions for the working of the economy and economic outcomes, in particular with respect to electoral systems, models of government, constitutional rights, and constitutional enforcement mechanisms (see survey by Voigt 2011b). This approach, rooted in Constitutional Economics, views the constitution as a set of “legal-institutional-constitutional rules that constrain the choices and activities of economic and political agents” (Buchanan 1987, p. 585). The state constitutional system serves primarily as a mechanism allowing to counteract time-inconsistency problems connected with drafting and implementing economic policy. Containing rules that impose constraints on activity of state authorities, the constitution acts as a mechanism allowing to turn promises made by representatives of state power into credible commitments.

Post-socialist transition taking place since 1989 in countries of Central and Eastern Europe, as well as later in Central and Southwestern Asia, provided a particularly fruitful ground for Constitutional Economics studies. Since 1990 all post-socialist countries of Europe and Asia1, with the exception of Latvia, adopted new constitutions envisaging varying solutions as regards the structure of government, bill of rights and other issues. This unprecedented time of broad-scale constitutional and, more generally, institutional change has sometimes been called a “gigantic natural experiment” (Elster 1991, p. 449), attracting interest of legal scholars, political scientists, sociologists and other social scientists. The contribution of economists concerns, in particular, linking constitutional change with economic policy pursued in these countries and economic performance.

Economic studies relating to post-socialist constitutions conducted to date reveal that several aspects of the constitutional framework laid down in these supreme legal acts, and their practical operation, mattered for economic ← 7 | 8 → performance of these countries during transition (e.g. Hellman 1997, Ahrens and Meurers 2001, Ahrens 2007, Metelska-Szaniawska 2009). In principle, the results of these studies confirm the constitution’s main function as a commitment mechanism for policy-making in transition, including the performance in broad-scale post-socialist economic reforms.

Despite their thought-provoking findings and stimulating conclusions, most of the empirical studies in the field of Constitutional Economics, including those pertaining to post-socialist constitutions, struggle with problems of endogeneity and causality, which undermine the validity of the employed empirical models and analytical techniques. The qualitative nature and country-specificity of various aspects examined in such analyses can also significantly limit the explicability of quantitative large-sample studies conducted within this field, as well as the reliability of the results and conclusions stemming from them. In this situation it comes as no surprise that authors active in this field often call for case study analyses, allowing to focus on country specificity and institutional detail, to support the large sample econometric analyses. Comparative case study research however suffers from its own problems and shortcomings, including in particular the lack of formalization in selecting the comparison units.

With such a list of caveats and challenges relating to empirical studies in Constitutional Economics it is not surprising that the current generalization level of the theory in this field is insufficient and its further development rests on the ability of empirical researchers to surmount these obstacles. Paraphrasing Douglass North (North 1990), we know that ‘constitutions matter’, however ‘which sets of constitutional rules’ and via which channels of influence, remains largely unclear, primarily as empirical studies conducted to date have delivered a wide range of incomparable results, which are questionable on several grounds for reasons mentioned in the previous paragraph. In this book we aim to contribute to surmounting these obstacles for further development of Constitutional Economics.

We base our empirical studies on the experiences of post-socialist countries in the period of (nearly) 25 years from the outset of transition in 1989. The central claim (thesis statement) of this book is that constitutional solutions, adopted by post-socialist countries after 1989, which enhanced the credibility and commitment of decision makers in the field of economic reforms conducted by these countries during the transition period, constituted a framework conducive to such reforms. In particular, we focus in this respect on the significance of structural provisions, bills of rights, as well as constitutional enforcement mechanisms. This claim builds up on consequent and systematic exploration of the link ← 8 | 9 → between constitutional rules and performance in the area of economic reforms by post-socialist countries, conducted by the author for the last several years, [initiated by Metelska-Szaniawska (2008)], and allows to organize the presented theoretical and empirical considerations. Several arguments justify refocus on the link between constitutions and economic reforms in post-socialist countries. The current account, presented in this book, is not only significantly enriched in several dimensions – by encompassing a notably longer time-period of nearly 25 years from the outset of transition, new constitutional rules, and broader and much more reliable data. The main contributions are: firstly, introducing a novel empirical approach allowing to respond to several of the caveats mentioned earlier, including the endogeneity allegation, and secondly, enriching the currently existing theoretical and empirical framework with elements suggested by Evolutionary Political Economy.

In order to circumvent the problems of endogeneity and causality in comparative studies with relatively small sample sizes, a new statistical approach has recently been developed, called the synthetic control method. It focuses on comparing the evolution of a studied outcome variable for a unit (e.g. country or region), where a particular intervention or event took place, with its evolution for a ‘synthetic counterfactual’ (i.e. ‘synthetic’ unit of interest, where the studied intervention or event did not occur) constructed based on a data-driven procedure of selecting comparison units that approximate the characteristics of the unit exposed to the intervention. Recently, the method has been successfully applied in several studies of economic consequences of large-scale events such as natural catastrophes (e.g. Cavallo et al. 2010, Barone and Mocetti 2014), political conflicts (e.g. Bove et al. 2014 and Costalli et al. 2014 – on civil wars; or Acemoglu et al. 2014a – on Egypt’s Arab Spring), as well as in studies focusing on effects of legal and policy interventions (e.g. Abadie et al. 2010, Bohn et al. 2014, Heim and Lurie 2014, Baum and Ruhn 2013, Doerrenberg and Peichl 2014). We apply this method to reassess the conclusions regarding the role of constitutional rules for economic reforms in post-socialist countries and contrast the obtained findings with results of studies conducted using regression estimation techniques.

In addition to the above contribution to empirical Constitutional Economics and, thereby, potentially to further development of the theory, we also attempt to enrich the latter with this book by opening the research on economic effects of constitutions to insights from the evolutionary approach to politics, as proposed by Evolutionary Political Economy. While interest in the topic of constitutions can be traced as far back as to the works of the predecessors of this approach, such as Friedrich August von Hayek (e.g. Hayek 1979) or Joseph Schumpeter ← 9 | 10 → (1942/1987), none of these studies, nor works of their followers, identify factors that a comprehensive account of economic effects of constitutions should incorporate, in an attempt to reconcile this view with the Constitutional Economics approach. We take up this challenge, present the potential channels, as well as offer empirical tests of preliminary predictions stemming from the theory and conclusions regarding the future development of this promising strand of research.

The book is structured as follows.

In Chapter 1 we elaborate on the theoretical nexus between constitutional rules and economic policy-making. We draw on the core components of the Constitutional Economics research program, as well as the recent ‘standard’ – Persson and Tabellini’s (2003) theoretical framework. We also discuss the obstacles and challenges that further development of such research on constitutions faces, as well as lay down the theoretical grounds for our empirical studies of economic effects of constitutions on post-socialist economic reforms, presented in the subsequent chapters.

As economic transition in post-socialist countries is a topic that has received ample attention of economists, also within political economy (for most recent collections see Hare and Turley 2013, Aslund and Djankov 2014) and new institutional economics (e.g. North 1997, Fischer and Sahay 2004, Lissowska 2006, Opper 2008 and others), we refrain from presenting in this book another survey of this literature and focus directly on the presentation of the constitutional framework that emerged in these countries after 1989. Chapter 2 provides, therefore, the relevant background information about post-socialist constitutions, relating in particular to their provisions establishing the systems of government, constitutional bills of rights, as well as enforcement mechanisms.

Summary

This book focuses on the nexus between constitutions adopted by post-socialist countries of Europe and Asia after 1989 and economic transition in the region. It takes the perspective of Constitutional Political Economy and argues for the role of constitutions as commitment-enhancing mechanisms for political decision makers in the field of post-socialist economic reforms. For the first time in economic studies of constitutions this book employs the synthetic control method – a novel empirical approach allowing to account for endogeneity and causality issues. The blend of theory (including evolutionary insights) and empirical results allows to formulate recommendations for constitution drafters, emphasizing the role of factual constitutional court independence for successful economic reforms.

Details

Pages
194
ISBN (PDF)
9783653060584
ISBN (ePUB)
9783653954937
ISBN (MOBI)
9783653954920
ISBN (Book)
9783631669532
Language
English
Publication date
2015 (December)
Published
Frankfurt am Main, Berlin, Bern, Bruxelles, New York, Oxford, Wien, 2016. 194 pp., 18 tables, 4 graphs

Biographical notes

Katarzyna Metelska-Szaniawska (Author)

Katarzyna Metelska-Szaniawska is Assistant Professor at the Faculty of Economic Sciences of the University of Warsaw. Her research focuses on Constitutional Law and Economics, as well as Public Choice. She was a visiting scholar at LICOS Centre for Institutions and Economic Performance at the University of Leuven. She is the former President of the Polish Association of Law and Economics and Vice-President of the European Association of Law and Economics.

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Title: Economic Effects of Post-Socialist Constitutions 25 Years from the Outset of Transition