Market Creation in Transition Economies: Reconstruction of Production Linkages in Kazakhstan

Since the fall of the Berlin Wall in 1989 and the collapse of the Soviet Union in 1991, countries in Central and Southeastern Europe and the Baltics (CSB), as well as the Commonwealth of Independent States (CIS), have been struggling to create market economies, in contrast with the booming transitions in China and Vietnam, which will be discussed in the next chapter.2 While the transition experiences of the CSB countries and the CIS have been similar in several aspects, the most striking similarity is the substantial magnitude of the drop in GDP (de Melo et al., 1996; de Melo et al., 1997; de Broeck and Koen, 2000; Campos and Coricelli, 2002; World Bank, 2002a). This fall took place immediately after the beginning of the transition and lasted three to six years in the CSB countries and four to ten years in the CIS. As a consequence these countries generally suffered from serious contractions of production and income in the 1990s, in sharp contrast with the perpetual double-digit growth in China and Vietnam. Indeed 21 of the 25 countries in question had lower GDPs in 1999 than in 1989; in the most serious cases, real GDP plummeted by more than 50 per cent during the decade (CIS Stat, 1996, 2000; EBRD, 2000; World Bank, 2002a).