The Czech Economic Transition: Exploring Options Using a Macrosectoral Model

Abstract

The processes that will drive the next stage of the Czech transition are likely to be similar to those promoting real convergence in the EU cohesion countries. We draw on previous modelling research on the cohesion economies to construct and calibrate a small macrosectoral model of the Czech Republic that serves to highlight key policy issues facing CEE-country decision-makers. Four scenarios are then explored by simulation: the first projects the current pattern of disequilibrium wage setting into the future, while a second looks at the consequences of labour market reform. The other scenarios highlight some of the differences between policy strategies based on indigenous versus FDI-driven export-led growth.

Economic Integration and Convergence Processes in the EU Cohesion Countries

“…10 Daveri and Tabellini (2000) present econometric evidence of this, and similar results emerge from the simulations of Barry et al (2003). In the three other cohesion countries, the 'state corporatist' regimes ensured wage moderation. This in turn facilitated investment rates above the EU-15 average in these three countries.…”

Foreign Direct Investment and economic transition: Panacea or pain killer?

“…Mencinger (2003) explains his results by the predominance of acquisition FDI in combination with privatisation discounts and the spending of sales proceeds on consumption and imports rather than debt reduction. A theoretically more stringent article uses a generalised computerised equilibrium approach to confront the same issues in a single country study of the Czech Republic (Barry et al 2003). The authors here conclude that an FDI led scenario is a more likely, but also a Scylla and Charybdis choice in transition countries.…”

Household balance sheets and economic crisis

“…8 The following 8 The marginal propensity to consume can be estimated using aggregate data. Barry, Bradley, Kejak and Vavra (2000) employed the value of 0.8 for the Czech economy. Thomson, Chung and McKibbin (2009) estimated MPC for households worried about their future job at close to 0.9 and for households not worried about their future job at close to 0.5.…”