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How I Learned to Stop Worrying and Love the Crisis

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  • Jan Fidrmuc
  • Ariane Tichit

Abstract

We investigate the effects of economic crises on the subsequent economic performance, economic reform, democratization and institutional change. Our analysis is based on a sample of post-communist countries, most of which experienced severe economic crises during the 1990s. We find that the severity of crisis has had a positive impact on the subsequent pace of economic reform, economic growth and, with a delay, on investment and institutional change. Episode of high inflation, moreover, translate into lower subsequent inflation. Crises thus appear to serve as catalysts of reform and institutional change and lead to better long-term economic performance.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3720.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_3720

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Keywords: crisis; transition; growth; inflation; reform; institutions;

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  1. Fidrmuc, Jan, 2001. "Economic Reform, Democracy and Growth during Post-Communist Transition," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2759, C.E.P.R. Discussion Papers.
  2. Michael Bruno & William Easterly, 1995. "Inflation Crises and Long-Run Growth," NBER Working Papers 5209, National Bureau of Economic Research, Inc.
  3. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, American Economic Association, vol. 81(5), pages 1170-88, December.
  4. Eduardo Lora & Mauricio Olivera, 2004. "What makes reforms likely: Political economy determinants of reforms in Latin America," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 99-135, May.
  5. Alberto Alesina & Silvia Ardagna & Francesco Trebbi, 2006. "Who Adjusts and When? On the Political Economy of Reforms," NBER Working Papers 12049, National Bureau of Economic Research, Inc.
  6. Michael Bruno & William Easterly, 1996. "Inflation's Children: Tales of Crises that Beget Reforms," NBER Working Papers 5452, National Bureau of Economic Research, Inc.
  7. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, American Economic Association, vol. 81(5), pages 1146-55, December.
  8. Anders Åslund & Peter Boone & Simon Johnson, 1996. "How to Stabilize: Lessons from Post -communist Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 217-314.
  9. Kornai Janos, 1994. "Transformational Recession: The Main Causes," Journal of Comparative Economics, Elsevier, vol. 19(1), pages 39-63, August.
  10. Fidrmuc, Jan, 2000. "Political support for reforms: Economics of voting in transition countries," European Economic Review, Elsevier, Elsevier, vol. 44(8), pages 1491-1513, August.
  11. John E. Jackson & Jacek Klich & Krystyna Poznanska, 2001. "Economic Transition and Elections in Poland," William Davidson Institute Working Papers Series 391, William Davidson Institute at the University of Michigan.
  12. Krueger, Anne O, 1993. "Virtuous and Vicious Circles in Economic Development," American Economic Review, American Economic Association, American Economic Association, vol. 83(2), pages 351-55, May.
  13. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2009. "Governance matters VIII : aggregate and individual governance indicators 1996-2008," Policy Research Working Paper Series 4978, The World Bank.
  14. Adam Przeworski, 2005. "Democracy as an equilibrium," Public Choice, Springer, Springer, vol. 123(3), pages 253-273, June.
  15. Gérard Roland, 2004. "Transition and Economics: Politics, Markets, and Firms," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 026268148x, December.
  16. Eduardo A. Cavallo & Alberto F. Cavallo, 2008. "Are Crises Good for Long-Term Growth?: The Role of Political Institutions," IDB Publications 6517, Inter-American Development Bank.
  17. Alberto Alesina & Silvia Ardagna & Francesco Trebbi, 2006. "Who Adjusts and When?The Political Economy of Reforms," IMF Staff Papers, Palgrave Macmillan, vol. 53(si), pages 1.
  18. Berta Heybey & Peter Murrell, 1999. "The relationship between economic growth and the speed of liberalization during transition," Journal of Economic Policy Reform, Taylor & Francis Journals, Taylor & Francis Journals, vol. 3(2), pages 121-137.
  19. Pitlik, Hans & Wirth, Steffen, 2003. "Do crises promote the extent of economic liberalization?: an empirical test," European Journal of Political Economy, Elsevier, Elsevier, vol. 19(3), pages 565-581, September.
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