Global Development Network Helps Transform Economics in Transition Economies
by Noemi Lea Giszpene and Lyn Squire

Launched in December 1999, the Global Development Network (GDN) is an emerging association of research and policy institutes worldwide that generate local knowledge and transform that knowledge into country-specific policy. The goal of the network is twofold. First, it seeks to enhance the capacity of researchers to analyze development issues in their own countries. In Eastern Europe and the former Soviet Union, it also helps researchers analyze transition-related issues. Second, it bridges the gap between research and policymaking, allowing policymakers to tap local knowledge and expertise in formulating policy. (For more information about GDN, visit its Web site at www.Gdnet.org.)

In  Eastern Europe and the former Soviet Union, a better understanding of market realities appears to be the key to improving policy at all levels of government. Yet the universal difficulties of bridging the gap between knowledge and policy are compounded by the need to manage a transition within the economics profession itself. A generation of economists has developed skills and techniques for an economic system—central planning—that no longer exists. To equip economists in the region to function in a market economy, economics curricula and textbooks have to be rewritten, faculty have to be retrained or replaced, new research and policy institutions have to be established, and so on. It may take a while before efforts to update the economics profession produce tangible results.

Links with Institutions in Eastern Europe

After 70 years of almost complete isolation and more than 10 years of muddling through transition, researchers in the Russian Federation work in very trying circumstances. They still lack exposure to modern economics, including direct access to modern research literature. University professors in Russia are expected only to teach, so they lack experience conducting research. The situation is scarcely better at research and policy institutes. Only a few institutions have emerged in recent years that are able to take a truly nonpartisan and methodologically sound approach to economic policy analysis. Because of their nonpartisan nature and the unstable political environment, these institutions have consistently failed to effectively inform and influence policymaking at the federal level.

GDN has partnered with institutions in the former Soviet Union and Eastern Europe to help address the issues of relevant research and policy effectiveness. One institution is the Economic Education and Research Consortium (EERC), initiated by the World Bank and the Eurasia Foundation early in 1996. EERC’s mission is to promote the reform of economics education and develop economics research capacity in the CIS. The coordinating institute for the Eastern European Network is the joint Center for Economic Research and Graduate Education of Charles University and the Economics Institute of the Academy of Sciences of the Czech Republic (CERGE-EI), located in Prague. CERGE was founded in 1991 as an American-style Ph.D. program. The Economics Institute was established in 1992 as a research institution. Both institutions share the goal of furthering modern economics in the former communist countries of Central and Eastern Europe.

In addition to supporting the activities of these institutions, GDN enlists the participation of regional economists in global projects. Institutions in the transition economies are participating in a GDN-sponsored global research project to determine the sources and consequences of economic growth. This research project, unprecedented in size and scope, is a promising way of strengthening the links among researchers and policy implementers in developing and transition economies. Nearly 50 researchers in seven regional research networks are taking part in the first phase of the project. The purpose of this project is to explain the growth experience of the seven regions participating in the Global Development Network (East Asia, South Asia, Latin America and the Caribbean, Eastern Europe, the former Soviet Union, the Middle East and North Africa, and Sub-Saharan Africa). The goal is to take a long historical perspective—30–50 years, depending on the data—but with an emphasis on more recent events and prospects for the future. If successful, this project will result in the most comprehensive account of growth in the developing world to date.

The first papers—on the sources of aggregate growth, markets and growth, microeconomics of growth, and political economy of growth in transition economies—have been completed. (Papers from Eastern Europe and the former Soviet Union are available at www.gdnet.org/grproject.htm.) They were reviewed at a workshop organized by the International Economics Association and hosted by CERGE-EI in June 2000.

Many of these papers explore the role and importance, especially in a transition context, of such institutions as the rule of law and real property rights The paper on aggregate growth highlights factors that are having significant effects on growth in transition economies but have received less attention in the general literature, namely, the role of institutions and government expenditures. The markets paper focuses on policies that promote the accumulation of physical and human capital and on the development of social and natural capital. Its authors do not agree with the view that even if the use of current inputs is increasingly efficient, it has no relevance to long-term growth prospects, finding such a view an oversimplification, especially in the transition context.

The paper on the microeconomic determinants of growth explains the striking contrasts in performance in restructuring enterprises between Central and Eastern Europe and the newly independent states. The paper on the political economy of reform highlights differences between the transition experience and the conventional wisdom that applies to developing economies. It finds that greater democratization spurred transition and growth, unless economic transition caused the collapse of institutions, thereby weakening the democratic process (a link between institutions and political competition not previously analyzed in the literature).

GDN is also helping each region build up its research capacity and networks. Through GDN, the World Bank is providing seed money to help foster empirical, policy-relevant development research by individuals and institutes in each region.

To date the Bank has provided $10 million in funding. The funds are provided through the Bank’s Development Grants Facility, which is financed by the interest borrower countries pay on World Bank loans. These funds are meant to help create and strengthen regional development networks. In all of the regional networks, the Bank supports open, competitive allocation of research funds; peer review by professionals from within the region and from outside; and the dissemination of research results to all interested parties. It is expected that development research networks that meet these high standards will attract additional funds from other donors.

GDN is also using another channel to encourage high-quality research. Sponsored by the Government of Japan and the World Bank, the GDN Awards seek to recognize and reward excellence in development research. Researchers compete for more than $500,000 in prize and travel money.

Awards will be based on the content, innovativeness, quality, and potential policy impact of the research proposal. The winners of the awards will be selected and announced at GDN’s Second Annual Global Development Conference, to be held in Tokyo in December 2000. Joseph Stiglitz will chair the selection committee, on which Nobel laureate Amartya Sen will serve. It is hoped that the competition will both raise research standards throughout the developing world and attract attention to high-quality, policy-relevant research. It will also provide researchers throughout the transition economies an opportunity to test their skills and gauge their progress against the best that the rest of the world has to offer.

The emphasis on competition and peer review in all of the GDN’s programs is essential to ensure high-quality research. But it runs the risk of striving for short-term results at the expense of long-term quality. To counteract this fear, authors whose proposals show promise are encouraged to revise and resubmit their projects. Encouragement takes the form of detailed substantive feedback on projects, coupled in many cases with a proposal development grant—a modest stipend and an allowance with which to purchase economics literature, Internet access, and so forth. This kind of support is aimed at younger researchers based in the regions.

Since 1998 GDN has been sponsoring a regular series of targeted methodological seminars. These seminars, designed to address particular shortfalls in formal training (such as econometrics), facilitate an incremental adjustment in the competition’s thematic coverage (for example, in the direction of applied labor economics and the economics of federalism).

To improve local capacity, the GDN also provides guidance and advice from top-flight researchers. Researchers working on the global research project, for example, have benefited from input from such notables as Robert Solow (MIT), Angus Deaton (Princeton University), and Dani Rodrik (Harvard University), among others.

The model being implemented by GDN throughout the developing world—and in particular, by EERC in Russia and CERGE-EI in Eastern Europe—appears to be adequately designed to cope with the "underdevelopment trap" in which the economics profession finds itself in many developing and transitional settings. Emulating and strengthening the initiative are the top items on the immediate agenda. GDN is supporting EERC’s effort to replicate its successful experience elsewhere in the CIS through the Transition Economics Research Network. The aim of the network is to establish a small "common economics space" within the CIS, opening the way for joint research projects, training activities, publications, policy seminars, and much more.

Efforts to strengthen the GDN are proceeding on several fronts. Key among these is an attempt to develop a permanent donor community that will meet regularly to discuss support for research and policy analysis. Twenty-five donors attended the launch of GDN in Bonn in December 1999, and many showed up at an interim meeting held in Brussels in June 2000. Representatives of donor countries and other organizations pledged fresh support for the GDN at an interim donors meeting held in Brussels on June 7. New commitments confirmed at the meeting included $2 million a year over five years from the U.S. National Institutes of Health (NIH) for research on health policy issues and $300,000 from the Swiss government for capacity-building training. A permanent group of donors is emerging that is interested in supporting GDN activities. Through them, GDN will be able to mobilize more resources for capacity building and networking.

Noemi Lea Giszpenc is consultant to the DEC Vice Presidency of the World Bank. Lyn Squire is director of DEC Global Network. Authors appreciate the contribution by Eric Livny, EERC, Russia.