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Stabilization, adjustment, and growth prospects in transition economies

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  • Denizer, Cevdet

Abstract

Political change marked the difference between the approaches of the countries of Eastern Europe and the former Soviet Union (FSU). The Baltics and most Eastern European countries wanted to break away from communism and the FSU domination--so their transition was characterized first by political change. Communists were discredited and removed from power, creating a period of"extraordinary politics"and a window of opportunity for reform. The collapse of the FSU did not lead to political change in most FSU states. There were indications of discontent with the Union, but except for the Baltics these were not as strong as in the Eastern European countries and there were no explicit demands for independence. The former communists hoped that the Commonwealth of Independent States (CIS) set up after the collapse of the FSU would evolve into a loose federation maintaining old trade and financial links. Many FSU countries avoided policies different from Russia's. Most political leaders did not initially think that they would need structural reform policies which could diverge from Russian policies. The pace of reform quickened only after the collapse of the ruble zone in the FSU in 1993. Knowing where to go helped shape reform. The Eastern European and Baltic countries, wanting to join the European Union and encouraged to do so, first initiated political reform, which led to economic reform. Most FSU countries, not knowing with whom to align, initially saw no choice but the Russian Federation. Once reforms are launched, the outcomes are quite similar. Growth starts about two full years after stabilization, although it took about a year longer in the FSU. Initial conditions are important to the transition. Short to medium-term prospects seem most favorable to Eastern Europe and the Baltics, although they still have to catch up with the OECD countries. If admitted to the European Union, they may attain high growth rates even in the longer term. The FSU countries have even more catching up to do. In the short to medium-term, countries with slower population growth rates and strong reform efforts should enjoy rapid per capita growth. The Central Asian countries, with their high population growth rates, need economic growth rates faster than their population growth rates. This leaves little room for slowing reform. Given the benefits of integration, there is a strong case for Central Asian countries pushing for an economic union, which would also facilitate the restructuring of their economies.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1855.

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Date of creation: 30 Nov 1997
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Handle: RePEc:wbk:wbrwps:1855

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Keywords: Public Health Promotion; Economic Theory&Research; Economic Conditions and Volatility; Environmental Economics&Policies; Banks&Banking Reform; Achieving Shared Growth; Governance Indicators; Economic Conditions and Volatility; Economic Theory&Research; Environmental Economics&Policies;

References

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Citations

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Cited by:
  1. Jan Fidrmuc, 2001. "Economic Reform, Democracy and Growth During Post-Communist Transition," William Davidson Institute Working Papers Series 372, William Davidson Institute at the University of Michigan.
  2. Nauro F. Campos & Abrizio Coricelli, 2002. "Growth in Transition: What We Know, What We Don't, and What We Should," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 793-836, September.
  3. Jan Babecky & Tomas Havranek, 2013. "Structural Reforms and Economic Growth: A Meta-Analysis," Working Papers, Czech National Bank, Research Department 2013/08, Czech National Bank, Research Department.
  4. Campos, Nauro F., 2000. "Back to the future: The growth prospects of transition economies reconsidered," ZEI Working Papers B 13-2000, ZEI - Center for European Integration Studies, University of Bonn.
  5. Theo Eicher & Till Schreiber, 2010. "Institutions and Growth: Time Series Evidence from Natural Experiments," Working Papers, University of Washington, Department of Economics UWEC-2007-15-P, University of Washington, Department of Economics.
  6. Eicher, Theo S. & Schreiber, Till, 2010. "Structural policies and growth: Time series evidence from a natural experiment," Journal of Development Economics, Elsevier, Elsevier, vol. 91(1), pages 169-179, January.
  7. Zohid Askarov & Hristos Doucouliagos, 2014. "Development Aid and Growth in Transition Economies," Economics Series 2014_5, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.

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