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Growth Slowdown in Bureaucratic Economic Systems: An Issue Revisited

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Author Info
Zuzana Brixiova
Aleš Bulir

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Abstract

Bureaucratically organized systems tend to be less efficient than economies in which agents are free to choose their output targets, as well as the means to meet them. This paper presents a simple model of planner-manager interactions and shows how bureaucratic economies can end up in a low-effort, low-growth equilibrium even though they may have started in high-effort , high-growth equilibrium. The empirical evidence from eight Central and Eastern European countries during 1948-49 is consistent with our model results, namely, that the growth decline was systemic in nature. The results are applicable to countries in other regions with heavy bureaucratic involvement in the economy.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 01/6.

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Length: 35 pages
Date of creation: 05 Jan 2001
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Handle: RePEc:imf:imfwpa:01/6

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Keywords: Economic growth ; Economic models ;

References listed on IDEAS
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  1. Banerjee, Abhijit V. & Spagat, Michael, 1992. "Shortages amid plenty under Soviet-type planning: A theory of unreliable supplies," Journal of Comparative Economics, Elsevier, vol. 16(2), pages 302-308, June. [Downloadable!] (restricted)
  2. Alexeev, Michael, 1991. "The 'storming' pattern of enterprise behavior in a centrally planned economy," Journal of Economic Behavior & Organization, Elsevier, vol. 15(2), pages 173-185, March. [Downloadable!] (restricted)
  3. Faith, Roger L & Short, Nancy C, 1995. " Bureaucratic Tenure and Economic Performance in Centrally Planned Economies," Public Choice, Springer, vol. 83(1-2), pages 139-57, April.
  4. Sapir, Andre, 1980. "Economic Growth and Factor Substitution: What Happened to the Yugoslav Miracle?," Economic Journal, Royal Economic Society, vol. 90(358), pages 294-313, June. [Downloadable!] (restricted)
  5. Hurwicz, Leonid, 1973. "The Design of Mechanisms for Resource Allocation," American Economic Review, American Economic Association, vol. 63(2), pages 1-30, May.
  6. Leamer, Edward E. & Taylor, Mark P., 1999. "Estimating growth equations for previously centrally planned economies: Dealing with dubious data and disparate information," Journal of Macroeconomics, Elsevier, vol. 21(4), pages 639-671. [Downloadable!] (restricted)
  7. Murrell, Peter & Olson, Mancur, 1991. "The devolution of centrally planned economies," Journal of Comparative Economics, Elsevier, vol. 15(2), pages 239-265, June. [Downloadable!] (restricted)
  8. Baron, David P. & Besanko, David, 1984. "Regulation and information in a continuing relationship," Information Economics and Policy, Elsevier, vol. 1(3), pages 267-302. [Downloadable!] (restricted)
  9. Brada, Josef C., 1978. "Plan execution and the workability of soviet planning," Journal of Comparative Economics, Elsevier, vol. 2(1), pages 65-69, March. [Downloadable!] (restricted)
  10. Freixas, Xavier & Guesnerie, Roger & Tirole, Jean, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Blackwell Publishing, vol. 52(2), pages 173-91, April. [Downloadable!] (restricted)
  11. Keren, Michael, 1982. "The ministry, plan changes, and the ratchet in planning," Journal of Comparative Economics, Elsevier, vol. 6(4), pages 327-342, December. [Downloadable!] (restricted)
  12. Easterly, William & Levine, Ross, 1998. "Troubles with the Neighbours: Africa's Problem, Africa's Opportunity," Journal of African Economies, Oxford University Press, vol. 7(1), pages 120-42, March.
  13. Milanovic, Branko & DEC, 1994. "Determinants of cross-country income inequality : an augmented Kuznets hypothesis," Policy Research Working Paper Series 1246, The World Bank. [Downloadable!]
  14. Easterly, William & Fischer, Stanley, 1995. "The Soviet Economic Decline," World Bank Economic Review, Oxford University Press, vol. 9(3), pages 341-71, September.
  15. Ickes, Barry W, 1990. "Do Socialist Countries Suffer a Common Business Cycle?," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 397-405, August. [Downloadable!] (restricted)
  16. Parsons, John E, 1986. " Credit Contracts in the G.D.R.: Decentralized Investment Decisions in a Planned Economy," Economic Change and Restructuring, Springer, vol. 20(1), pages 28-51.
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  1. Zuzana Brixiová & Aleš Bulír, 2002. "Growth Slowdown Under Central Planning: A Model of Poor Incentives," William Davidson Institute Working Papers Series 448, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  2. Dirk Bezemer & Uwe Dulleck & Paul Frijters, 2003. "Socialism, Capitalism, and Transition-Coordination of Economic Relations and Output Performance," Vienna Economics Papers 0305, University of Vienna, Department of Economics. [Downloadable!]
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