Governance Institutions and Outcomes
New Directions in Modern Economics series
Edited by Mehmet Ugur and David Sunderland
Chapter 6: The Effects of Convergence in Governance on Capital Accumulation in the Black Sea Economic Cooperation Countries
Ahmet Faruk Aysan, Ömer Faruk Baykal and Marie-Ange Véganzonès-Varoudakis INTRODUCTION In an increasingly interdependent world, regionalization is considered as a means of collaboration and integration among member states. The Black Sea Economic Cooperation (BSEC) project is a regional economic co-operation arrangement established on 25 June 1992 by 11 countries: Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, the Russian Federation, Turkey and Ukraine. The region constitutes a sizeable market with a population of over 350 million people. The main aim of BSEC is to develop and diversify existing economic relations among its members, by making efficient use of the advantages arising from their geographical proximity. At the same time, BSEC is expected to help transform the centrally planned economies and improve economic and social integration through intra-regional convergence of governance institutions and inter-regional convergence with the European Union (EU). Good governance institutions help guarantee property rights and minimize transaction costs, thus creating an environment conducive to investment and growth. Since the establishment of BSEC, member countries have gone through a transition process and, to a large extent, this has been about institutional transformation. Although this transformation had a significant impact on economies of the member states, the convergence of the institutions in the region has not been widely studied in the literature. This chapter attempts to fill this gap. To fulfill this objective, we first investigated the relation between governance institutions and investment for a sample of 43 developing countries through using dynamic system GMM (generalized method-of-moments) 119...
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