Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Output Decline in Central and Eastern Europe: A Classical Explanation


Author Info

  • Bofinger, Peter
Registered author(s):


    The paper discusses the strong output decline in the countries of Central and Eastern Europe. It starts from the puzzling observation that the former CSFR, Hungary and Poland experienced a relatively similar decline in output in spite of completely different stabilization and transformation policies. Using an aggregate supply/demand (AS/AD) framework it can be shown that there are obvious `real' causes for an output drop. The command economy was characterized by a dual disequilibrium (labour market and goods market). The removal of the high excess employment leads to an inevitable drop of natural output and employment together with a reduction of real wages. This is amplified by a downward shift of the production function, mainly because of lack of corporate governance. With very flexible nominal wages, the transitional economy can be represented by the `classical' version of the AS/AD model, which suggests that the theoretical basis for demand-side explanations is rather weak. This supply-side view is compatible with the popular explanation given by Calvo and Coricelli, but their evidence for a `credit crunch' in Poland is not very strong. The paper also discusses the `Soviet trade shock' as a possible cause for the output drop. It shows that Hungary and Poland -- and to some extent the CSFR -- were able to compensate their loss of CMEA exports by expanding their exports to the West, so that an overall trade shock cannot be observed. The `classical' explanation of the output decline rules out policies stimulating demand. What is required is a framework enhancing the transfer of resources from state-owned enterprises to the emerging private sector.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL:
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 784.

    as in new window
    Date of creation: May 1993
    Date of revision:
    Handle: RePEc:cpr:ceprdp:784

    Contact details of provider:
    Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.
    Phone: 44 - 20 - 7183 8801
    Fax: 44 - 20 - 7183 8820

    Order Information:

    Related research

    Keywords: CMEA Trade Shock; Eastern Europe; Economic Transition; Monetary Policy;

    Find related papers by JEL classification:


    No references listed on IDEAS
    You can help add them by filling out this form.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Dries, Liesbeth & Swinnen, Johan F. M., 2002. "Institutional Reform and Labor Reallocation During Transition: Theory Evidence From Polish Agriculture," World Development, Elsevier, vol. 30(3), pages 457-474, March.
    2. Johan Swinnen & Liesbet Vranken, 2010. "Reforms and agricultural productivity in Central and Eastern Europe and the Former Soviet Republics: 1989–2005," Journal of Productivity Analysis, Springer, vol. 33(3), pages 241-258, June.
    3. Swinnen, Johan F.M. & Dries, Liesbeth & Macours, Karen, 2001. "Transition And Agricultural Labour," 2001 Annual meeting, August 5-8, Chicago, IL 20602, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).


    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


    Access and download statistics


    When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:784. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.