database). About 25 countries are covered in the analysis over the period 1992 to 2004, depending on the data source.

Data on real GDP growth rate ( _GR_ ) are from national authorities and World Bank staff estimates. Because there are notable outliers in the dataset (in particular, the summary statistics indicate minimum and maximum values corresponding to -44 percent and +81 percent, respectively), we also use data from the IMF’s World Economic Outlook (WEO) database. There are fewer observations from the IMF-WEO but the range of values is also much narrower (and likely more plausible). As will be shown below, however, the results are largely invariant to data source. Data on inflation are calculated from CPI data drawn from the IMF-WEO database.

The index of armed conflict or war dummy is constructed using information from two sources: (i) _Armed Conflict Events Data_ , following the work of Staehr (2003); and (ii) the _Uppsala Armed Conflict dataset_ .<sup>9</sup> The dummy takes on a value of [1] during years of conflict and [0] otherwise. Data on fiscal balance and public investment in percent of GDP are from Bank staff estimates. As an alternative, we also use data on fiscal balance from the EBRD. The indexes of reform are from de Melo et al (1996) and from the EBRD as indicated.

Our measure of government effectiveness is based on the World Bank’s Governance Indicator database (see also the Data Appendix). In particular, the “government effectiveness” measure, which purports to measure “the competence of the bureaucracy and the quality of public service delivery” (Kaufmann, Kraay, and Mastruzzi 2005). An alternative measure of government effectiveness weights the level indicator by its standard error, to place greater weight on indexes whose values have narrower variations (and are thus more consistent across their survey sources). We also use a few other proxies for governance. For example, we use data on bribes in percent of annual sales drawn from the Business Environment and Enterprise Performance Survey (BEEPS). We also use data on quality of public sector institutions from the World Bank’s Country Policy and Institutional Assessment (CPIA); in particular, we use the overall rating for Public Sector Management and Institutions.

There are two well-known constraints by the empirical literature on growth in transition economies, and this paper is _not_ an exception. The first is the use of official GDP data, despite unofficial economic activity that is perceived to be significant. The second is the relatively short time span covered by these studies, and thus preventing the use of more sophisticated, dynamic specification. Nonetheless, the data used in this note represent significant improvements over the existing literature, in terms of both quantity and quality. First, while the total number of observations varies according to the regression specification, some 25 countries are now covered over a 12-year period yielding a total sample size of up to 300 observations—about double the number of observations used in some of the first empirical studies. Second, many of the data series

> 9 Downloaded from www.onwar.com/aced/index.htm and <u>http://www.pcr.uu.se/research/UCDP/our_data1.htm respectively.</u>

12