The Transition Economies After Ten Years

Abstract

While output declined in virtually all transition economies in the initial years, the speed and extent of the recovery that followed has varied widely across these countries. The contrast between the more and less successful transitions, the latter largely in the former Soviet Union, raises many questions about the relative roles played by adverse initial conditions, external factors, and reform strategies. This paper summarizes the macroeconomic performance of the transition economies. We first review the initial conditions confronting these economies, the reform strategy that was proposed, and the associated controversies that arose a decade ago. We then account for the widely different outcomes, highlighting the role of exogenous factors and the macroeconomic and structural policies adopted by the countries. We find that both stabilization policies and structural reforms, particularly privatization, contributed to the growth recovery. We also conclude that the faster is the speed of reforms, the quicker is the recovery and the higher is growth.

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“…This result fits very well into the existing literature. It confirms the results of de Melo et al (2001) and The World Bank (2002), as well as the results of numerous older empirical studies done in the 90s such as Fischer et al (1996), Havrylyshyn et al (1998), Havrylyshyn et al (1999), Heybey and Murrell (1999), Fischer and Sahay (2000), Abed and Davoodi (2000), Katchanovski (2000) and Popov (2000).…”

“…Depending on the particular initial conditions present in a specific country, it was more profitable for some countries to start the process of liberalization and reformation due to the favourable ratio of costs to benefits. On the other hand, it is also possible to assume that the role of the initial conditions is indirect, so instead of impacting growth directly, it influences growth through the policies of structural reforms, stabilization and liberalization (de Melo et al, 1996;Wolf, 1999;Fischer and Sahay, 2000).…”

Divergence Period in the European Convergence Process

“…The period covered is 1992-2006. For all eight CEE countries the initial period of transition is characterized by drastic falls in output; high inflation and rising unemployment (Fischer and Sahay 2000). The most drastic example is real GDP growth of about -40% in Latvia in 1992.…”

Comparison between sponsored and non-sponsored regarding personal administrative factors for SMEs from Kuwait during the COVID-19 pandemic

“…In the transition economies, firms need not only to thrive themselves but also to actively contribute to the evolution of the economies. Thus, a collective co-volution can help out when there is a balance between stabilization and structural reforms (Fischer & Sahay, 2000). This duality exposes the firms to uncertainty and a high cost of funding as they adapt to the new legal and other contexts emerging as a part of the transition (Welter & Smallbone, 2003).…”