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From plan to market : patterns of transition

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  • de Melo, Martha
  • Denizer, Cevdet
  • Gelb, Alan

Abstract

In analyzing the transitional experience of countries in Central and Eastern Europe (CEE) and the former Soviet Union (FSU), the authors find strong common patterns for countries at similar stages of reform despite differences in initial conditions. To establish rankings, the authors create a reform index combining the intensity and duration of economic liberalization. Freeing domestic prices is one element of reform captured by the index; it was needed to enable governments to cut subsidies and restore macroeconomic balance. Other dimensions of reform captured by the index are liberalization of external trade, including foreign currency convertibility, and facilitation of private sector entry through privatization of state enterprises and improvements in the environment for private sector development. Some countries moved faster on reform than others, and one major reason appeared to have been the pace of political liberalization. Liberalization has, indeed, encouraged capital and labor to reallocate from industry toward services, many of which were previously repressed; and the repressed sectors fueled the return to positive growth in fast reformers. For slow reformers, the main problem in achieving stabilization has been the continued monetization of fiscal and quasi-fiscal deficits, associated with attempts to maintain employment in the old system. Among the policy implications are: 1) stabilization is a priority for the resumption of growth, and this requires extensive liberalization; 2) stabilization is made difficult by output contractions in the early stages of liberalization, by limited external financing, and by very large depreciations of the real exchange rate; and 3) there is no evidence that a slower pace of reform strengthens the fiscal position of slow reformers; their consolidated fiscal and quasi-fiscal deficits are quite high.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1564.

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Date of creation: 31 Jan 1996
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Handle: RePEc:wbk:wbrwps:1564

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Keywords: Insurance&Risk Mitigation; Economic Conditions and Volatility; Environmental Economics&Policies; Economic Theory&Research; Insurance Law; Economic Conditions and Volatility; Economic Theory&Research; Environmental Economics&Policies; Insurance&Risk Mitigation; Insurance Law;

References

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  1. Michael Marrese & Mark Scott Lutz & Tapio Saavalainen & Vincent Koen & Biswajit Banerjee & Thomas Krueger, 1995. "Road Maps of the Transition," IMF Occasional Papers 127, International Monetary Fund.
  2. Hughes, Gordon A & Hare, Paul, 1994. "The International Competitiveness of Industries in Bulgaria, Czechoslovakia, Hungary, and Poland," Oxford Economic Papers, Oxford University Press, vol. 46(2), pages 200-221, April.
  3. Woo Wing Thye, 1994. "The Art of Reforming Centrally Planned Economies: Comparing China, Poland, and Russia," Journal of Comparative Economics, Elsevier, vol. 18(3), pages 276-308, June.
  4. Aslund Anders, 1994. "Lessons of the First Four Years of Systemic Change in Eastern Europe," Journal of Comparative Economics, Elsevier, vol. 19(1), pages 22-38, August.
  5. Milanovic, Branko, 1995. "Poverty, inequality, and social policy in transition economies," Policy Research Working Paper Series 1530, The World Bank.
  6. Dabrowski, Marek, 1996. "Different strategies of transition to a market economy : how do they work in practice?," Policy Research Working Paper Series 1579, The World Bank.
  7. Alan Gelb & Gary Jefferson & Inderjit Singh, 1993. "Can Communist Economies Transform Incrementally? The Experience of China," NBER Chapters, in: NBER Macroeconomics Annual 1993, Volume 8, pages 87-150 National Bureau of Economic Research, Inc.
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