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Shock Therapy Versus Gradualism Reconsidered: Lessons From Transition Economies After 15 Years Of Reforms

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  • Vladimir Popov

    ()
    (NES)

Abstract

This paper starts by separating the transformational recession (reduction of output in most transition economies in the first half of the 1990s) from the process of economic growth (recovery from the transformational recession) in 28 transition economies (including China,Vietnam and Mongolia). It is argued that the former (the collapse of output during transition) can be best explained as adverse supply shock caused mostly by a change in relative prices after their deregulation due to distortions in industrial structure and trade patterns accumulated during the period of central planning, and by the collapse of state institutions during transition period, while the speed of liberalization, to the extent it was endogenous, i.e. determined by political economy factors, had an adverse effect on performance. In contrast, at the recovery stage the ongoing liberalization starts to affect growth positively, whereas the impact of pre-transition distortions disappears. Institutional capacity and reasonable macroeconomic policy, however, continue to be important prerequisites for successful performance.

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Bibliographic Info

Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0068.

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Length: 35 pages
Date of creation: Aug 2006
Date of revision:
Handle: RePEc:cfr:cefirw:w0068

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References

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  1. Gérard Roland, 2004. "Transition and Economics: Politics, Markets, and Firms," MIT Press Books, The MIT Press, edition 1, volume 1, number 026268148x, December.
  2. Lau, Lawrence J & Qian, Yingyi & Roland, Gérard, 1997. "Pareto-Improving Economic Reforms through Dual-Track Liberalization," CEPR Discussion Papers 1595, C.E.P.R. Discussion Papers.
  3. Gerard Roland & Thierry Verdier, 1997. "Transition and the Output Fall," William Davidson Institute Working Papers Series 37, William Davidson Institute at the University of Michigan.
  4. Andrew Atkeson & Patrick J. Kehoe, 1993. "Social Insurance and Transition," NBER Working Papers 4411, National Bureau of Economic Research, Inc.
  5. Krueger, Gary & Ciolko, Marek, 1998. "A Note on Initial Conditions and Liberalization during Transition," Journal of Comparative Economics, Elsevier, vol. 26(4), pages 718-734, December.
  6. Campos, Nauro F., 2000. "Context is everything : measuring institutional change in transition economies," Policy Research Working Paper Series 2269, The World Bank.
  7. 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, vol. 3(2), pages 121-137.
  8. Blanchard, O & Kremer, M, 1996. "Disorganization," Working papers 96-30, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Polterovich, Victor & Popov, Vladimir, 2005. "Democracy and Growth Reconsidered: Why Economic Performance of New Democracies is not Encouraging," MPRA Paper 21606, University Library of Munich, Germany.
  10. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1992. "The Transition to a Market Economy: Pitfalls of Partial Reform," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 889-906, August.
  11. Polterovich, Victor & Popov, Vladimir, 2005. "Appropriate Economic Policies at Different Stages of Development," MPRA Paper 20066, University Library of Munich, Germany.
  12. Sergio Godoy & Joseph Stiglitz, 2006. "Growth, Initial Conditions, Law and Speed of Privatization in Transition Countries: 11 Years Later," NBER Working Papers 11992, National Bureau of Economic Research, Inc.
  13. Polterovich, Victor & Popov, Vladimir, 2003. "Accumulation of Foreign Exchange Reserves and Long Term Growth," MPRA Paper 20069, University Library of Munich, Germany.
  14. Oleh Havrylyshyn & Ron van Rooden, 2003. "Institutions Matter in Transition, But So Do Policies," Comparative Economic Studies, Palgrave Macmillan, vol. 45(1), pages 2-24, March.
  15. de Melo, Martha & Denizer, Cevdet & Gelb, Alan & Tenev, Stoyan, 1997. "Circumstance and choice : the role of initial conditions and policies in transition economies," Policy Research Working Paper Series 1866, The World Bank.
  16. de Melo, Martha & Denizer, Cevdet & Gelb, Alan, 1996. "Patterns of Transition from Plan to Market," World Bank Economic Review, World Bank Group, vol. 10(3), pages 397-424, September.
  17. Vladimir Popov, 2000. "Shock Therapy Versus Gradualism: The End Of The Debate (Explaining The Magnitude Of Transformational Recession)," Comparative Economic Studies, Palgrave Macmillan, vol. 42(1), pages 1-57, April.
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Citations

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Cited by:
  1. Kolodko, Grzegorz W., 2009. "A Two-thirds Rate of Success: Polish Transformation and Economic Development, 1989-2008," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  2. Popov, Vladimir, 2010. "Is Chinese variety of capitalism really unique?," MPRA Paper 28109, University Library of Munich, Germany.
  3. Challet, Damien & Solomon, Sorin & Yaari, Gur, 2009. "The Universal Shape of Economic Recession and Recovery after a Shock," Economics Discussion Papers 2009-6, Kiel Institute for the World Economy.
  4. Polterovich, Victor & Popov, Vladimir & Tonis, Alexander, 2009. "Концентрация Доходов, Нестабильность Демократии И Экономический Рост
    [Income Concentration, Instability of Democracy and the Economic Gr
    ," MPRA Paper 27561, University Library of Munich, Germany.
  5. Polterovich, Victor, 2008. "Современное Состояние Теории Экономических Реформ
    [Modern Condition of the Theory of Economic Reforms]
    ," MPRA Paper 22032, University Library of Munich, Germany.
  6. Polterovich, Victor & Popov, Vladimir, 2007. "Democratization, Quality of Institutions and Economic Growth," MPRA Paper 19152, University Library of Munich, Germany.
  7. Polterovich, Victor & Popov, Vladimir, 2007. "Демократизация И Экономический Рост
    [Democratization and Economic Growth]
    ," MPRA Paper 23012, University Library of Munich, Germany.
  8. Alexei Izyumov & Trista Claxon, 2009. "Models of Capitalism and Income Distribution in Transition Economies: A Comparative Perspective," Journal of Economic Issues, M.E. Sharpe, Inc., vol. 43(3), pages 733-758, September.

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