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Bridging the technology-gap in economic transition, the J-curve of growth and unemployment

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  • Hetze, Pascal
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    Abstract

    The macroeconomic experience has been somewhat ambiguous during the historic experiment of economic transition in the former centrally-planed countries in Central and East Europe (CEE). The economic restructuring produced a notable catching-up in terms of productivity but also a J-curve shape of output growth accompanied by an increase in unemployment on a large scale. This paper models the transformation progress which leads to these contradictory outcomes. Before transition initiated catching-up, the economies suffered from two limits to growth: a gap of usable capital and a gap of technologies. Accordingly, a rapid technology transfer from the advanced Western economies led to a significant technological and structural change combined with high rates of labor reallocation. If we include frictions in the consequent matching between job seekers and jobs, the model reproduces the pattern of productivity, growth and unemployment that we find in the CEE countries. --

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    Bibliographic Info

    Paper provided by University of Rostock, Institute of Economics in its series Thuenen-Series of Applied Economic Theory with number 66.

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    Date of creation: 2006
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    Handle: RePEc:zbw:roswps:66

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    Keywords: catching-up; growth; unemployment; technological change; transition economies;

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    1. John Haltiwanger & Hartmut Lehmann & Katherine Terrell, 2003. "Job Creation and Job Destruction in Transition Countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(2), pages 205-219, June.
    2. Romer, Paul, 1993. "Idea gaps and object gaps in economic development," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 543-573, December.
    3. Michael Funke & Felix FitzRoy, 1995. "Skills, Wages, and Employment in East and West Germany," IMF Working Papers 95/4, International Monetary Fund.
    4. Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc.
    5. Arjun S. Bedi & Andrzej Cielik, 2002. "Wages and wage growth in Poland: The role of foreign direct investment," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(1), pages 1-27, March.
    6. Keller, Wolfgang, 2002. " Trade and the Transmission of Technology," Journal of Economic Growth, Springer, vol. 7(1), pages 5-24, March.
    7. Gerard Roland & Thierry Verdier, 1997. "Transition and the Output Fall," William Davidson Institute Working Papers Series 37, William Davidson Institute at the University of Michigan.
    8. Faggio, Giulia & Konings, Jozef, 2003. "Job creation, job destruction and employment growth in transition countries in the 90s," Economic Systems, Elsevier, vol. 27(2), pages 129-154, June.
    9. Blanchard, Olivier, 1996. "Theoretical Aspects of Transition," American Economic Review, American Economic Association, vol. 86(2), pages 117-22, May.
    10. Dariusz K. Rosati, 1994. "Output decline during transition from plan to market: a reconsideration," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(4), pages 419-441, December.
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