“EXPLAINING GROWTH IN ARMENIA: PIVOTAL ROLE OF HUMAN CAPITAL” Yerevan, Armenia (February 25, 2002

Authors:
HEGINE MANASYAN, hmanas@freenet.am 
TIGRAN JRBASHYAN, sedmarsed@netsys.am 

ABSTRACT

The paper investigates sources and determinants of long run growth in Armenia concentrating on the growth path during the period of transition to market economy. Empirical relationships between the rates of growth and total factor productivity growth, physical and human capital accumulation, as well as institutional change and initial conditions have been evaluated. Country-specific circumstances of transition recession and factors of following growth are revealed in cross-country comparisons. However, classical growth theory does not explain Armenia’s growth fully. By and large, this paper is an attempt to explain economic growth using interdisciplinary approach extending economic analysis with political, geographic, sociological, psychological, and historical facts and considerations.

Data suggest a positive and increasing effect of formal education on productivity growth since 70s when growth in educational attainment increased contribution of R&D to overall country’s growth. Transition being a great shock to economic system seemingly introduced opposite pattern during initial period of systemic changes. We argue that steady economic growth recorded during last few years is a partial reflection of economic activity after sharp economic decline occurred at the beginning of transition, market reforms introduced at early stages of transition, and strangely favorable outcome of seemingly biased stabilization policy (focused mainly on monetary reform) implemented since 1994. In last few years, contribution of TFP to country’s growth became positive again more or less corresponding to previously established (“normal”) patterns. We believe that sustainable economic growth for Armenia is possible only through human capital accumulation.

For full text contact Economic Education Research Consortium: http://195.28.33.75/activ/projects/GRP/papers/Armenia_final.pdf or http://eerc.ru/activ/projects/GRP/papers/Armenia_final.pdf

Another source on Armenia's economy is the web of the EU Tacis project: Armenia Economic Trends (both English and Russian versions are available at www.economic-trends.org