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On the Speed of Transition Central Europe

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  • Philippe Aghion
  • Olivier Jean Blanchard

Abstract

Transition in Central Europe is four years old. State firms which dominated the economy are struggling with market forces. A new private sector quickly emerged and has taken hold. Unemployment, which did not exist, is high and still increasing. Will this process of transition accelerate, or slow down? Will unemployment keep increasing? Can things go wrong and how? Our paper represents a first pass at answering those questions. The basic structure of the model we develop is standard, that of the transition from a low to a high productivity sector. But we pay attention to two aspects which strike us as important. The first is the interactions between unemployment and the decisions of both state and private firms. The second are the idiosyncracies which come from the central planning legacy, from the structure of control within state firms to the lack of many market institutions, which limits private sector growth. We start with a description of transition in Poland so far. We then develop a model and use it to think about the determinants of the speed of transition and the level of unemployment. Finally, we return to the role of policy and the future in Poland, as well as the causes of cross-Central European country variations.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4736.

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Date of creation: May 1994
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Publication status: published as Fischer, Stanley and Julio Rotemberg (eds.) NBER Macroeconomics Annual 1994. Cambridge: MIT Press, 1994.
Handle: RePEc:nbr:nberwo:4736

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  1. Brian Pinto & Marek Belka & Stefan Krajewski, 1993. "Transforming State Enterprises in Poland: Evidence on Adjustment by Manufacturing Firms," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 213-270.
  2. Qimiao Fan & Mark E. Schaffer, 1994. "Government financial transfers and enterprise adjustments in Russia, with comparisons to Central and Eastern Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(2), pages 151-188, 06.
  3. De Crombrugghe, A. & Lipton, D., 1993. "The Government Budget and the Economic Transformation of Poland," Research Paper 111, World Institute for Development Economics Research.
  4. Guillermo A. Calvo & Fabrizio Coricelli, 1993. "Output Collapse in Eastern Europe: The Role of Credit," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 32-52, March.
  5. Caballero, Ricardo J & Hammour, Mohamad L, 1996. "On the Timing and Efficiency of Creative Destruction," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 805-52, August.
  6. Guillermo Calvo & Fabrizio Coricelli, 1992. "Output Collapse in Eastern Europe," IMF Working Papers 92/64, International Monetary Fund.
  7. repec:fth:coluec:655 is not listed on IDEAS
  8. J Rostowski, 1993. "The Implications of Rapid Private Sector Growth in Poland," CEP Discussion Papers dp0159, Centre for Economic Performance, LSE.
  9. Andrew Atkeson & Patrick J. Kehoe, 1993. "Industry evolution and transition: the role of information capital," Staff Report 162, Federal Reserve Bank of Minneapolis.
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