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Economics of Transition Barry W. Ickes Spring 2007.
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Transcript of Economics of Transition Barry W. Ickes Spring 2007.
Economics of Transition
Barry W. IckesSpring 2007
What is Transition
• Transition is development economics from different initial conditions– Developing economies start poor– Transition economies were poor
countries that adopted strange institutions to develop
– The key question of transition economics is how to get back to the normal road of economic development• Without having to double back
Founding Fathers
Magnitogorsk
Chelyabinsk Tractor Factory
Norilsk
Gdansk Shipyards
Antonov
Berlin Wall
Transition
Transition Figures
Comparative Economics vs Economics of Transition
• The study of comparative economic systems was much like economic pathology. – We studied how economic systems that were "sick"
operated. – What happens to the economic system when its
nervous system is seriously distorted?
• Economics of Transition is then the study of therapy: ∙ – How does an economic system suffering from such
pathology recover? – It is the study of restoring the health of an economic
system.
Evolution and Transition
• Compelling issue of transition economics is that simply removing distortions and impediments to markets does not accomplish the task of economic renewal.– Institutional change is complex and painful
• Development is the process of turning a less complex organism into a more complex one
• Transition is very different. – It can be likened to changing the organism from
one type to another• Transition economies differ in terms of how
long they spent on the “wrong” path
Human Evolution
homo habilis
neanderthal homo sapien
Economic Evolution
pre-industrialeconomy
socialism capitalism
The main ingredients of the transition process
• Liberalization• Macroeconomic stabilization• Restructuring and privatization • Legal and institutional reforms• But what order and what to
emphasize first?
Some Transition Puzzles
• The Output Fall– The Uzbek Growth Puzzle
• Returns to human capital• Re-demonetization• Value destroying activities are retained
– Difficulty of eliminating soft-budget constraints
• Geography matters– The Great Divide
• Privatization and efficiency
Transition Questions1. Do differences in transition outcomes reflect
primarily reform strategies or initial conditions? 2. Is it necessary to begin with liberalization and
stabilization? 3. How crucial is privatization to marketization?4. Does transition require that a gulf emerge
between winners and losers? 5. Is there only one path that the transition can
take? Or are there alternatives to the Washington consensus?
6. How long will the transition last?• When is transition over?
Inflation by Region
Figure 1: Official GDP Growth in Central and Eastern Europe
50.00
60.00
70.00
80.00
90.00
100.00
110.00
120.00
130.00
140.00
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
1989=100
ALBANIA BULGARIA CROATIA CZECH REPUBLIC HUNGARY
POLAND ROMANIA SLOVAK REPUBLIC SLOVENIA
GDP in CEE’s
Figure 2: GDP in the Former Soviet Union, 1989-2000
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
110.00
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
ARMENIA AZERBAIJAN BELARUS ESTONIA GEORGIA
KAZAKHSTAN KYRGYZ REPUBLIC LATVIA LITHUANIA MOLDOVA
RUSSIA TAJIKISTAN TURKMENISTAN UKRAINE UZBEKISTAN
GDP in FSU
Depth of Transition and Distance from Brussels
Current GDP and Distance to Brussels
Evolution by Region
China and India in the Long View
0
500
1000
1500
2000
2500
3000
3500
1700 1820 1870 1913 1950 1973 1998
India China
Chinese Poverty