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Who Gains from Restructuring the Post-Soviet Transition Economies, and Why?

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  • T. Huw Edwards

Abstract

To explore the mixed economic results and huge distributional changes experienced by post-Soviet economies, I set up a series of theoretical and numerical simulation models using an approach based upon heterogeneous firms, where 'reform' means closure of inefficient capacity. In the presence of significant costs to new firm entry and international capital mobility, restructuring and privatisation can lead to falls in GDP and real wages, while capital is transferred abroad. This situation can occur even under perfect competition, but is worse when industrial production is concentrated and trade costs are high. By contrast, workers can gain when costs of establishing new firms are low, and/or when the inefficient industries are capital-intensive. For countries with high costs of firm set-up and of trade, capital controls may be justified to protect wages.

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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal International Review of Applied Economics.

Volume (Year): 20 (2006)
Issue (Month): 4 ()
Pages: 425-448

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Handle: RePEc:taf:irapec:v:20:y:2006:i:4:p:425-448

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Related research

Keywords: Transition; wages; general equilibrium;

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References

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  1. Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles 4551798, Harvard University Department of Economics.
  2. Branko Milanovic, 1999. "Explaining the increase in inequality during transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(2), pages 299-341, July.
  3. Vivek Ghosal, 2003. "Impact of Uncertainty and Sunk Costs on Firm Survival and Industry Dynamics," CIG Working Papers SP II 2003-12, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  4. Ghironi, Fabio & Melitz, Marc J, 2004. "International Trade and Macroeconomic Dynamics with Heteroegenous Firms," CEPR Discussion Papers 4595, C.E.P.R. Discussion Papers.
  5. Castanheira, Micael & Roland, Gerard, 2000. "The Optimal Speed of Transition: A General Equilibrium Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 219-39, February.
  6. Roberts, Barbara M & Round, Jeffery I & Zolkiewski, Zbigniew, 1998. "Structural Features of Economic Reform in Poland," Review of Development Economics, Wiley Blackwell, vol. 2(2), pages 211-30, June.
  7. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
  8. Kessides, Ioannis N, 1990. "Market Concentration, Contestability, and Sunk Costs," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 614-22, November.
  9. Neary, J Peter, 1978. "Short-Run Capital Specificity and the Pure Theory of International Trade," Economic Journal, Royal Economic Society, vol. 88(351), pages 488-510, September.
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