2005-06 Market reform and infrastructure development in transition economies

This paper presents an econometric analysis of the determinants of investments in physical infrastructure over the first decade of market reform in Central and Eastern Europe and other former Soviet economies. While our econometric specifications are quite simple – limited in part by the data requirements for a large cross-section of developing economies – they strongly suggest that market reform has had a positive impact on both traditional and newer (“high-tech”) measures of infrastructure, with a stronger impact on the newer types of infrastructure more likely to be market-derived. There is also the strong suggestion that market reform is more likely to push investors to develop infrastructure when political/institutional reforms are accomplished in tandem.