Cost And Benefits Of Czech Economic Transformation: Macroeconomic Approach

The paper evaluates costs and benefits related to the transformation of the Czech economy. As an alternative approach to the frequently used accounting-based view, a macroeconomic method is utilized which identifies costs and benefits of the transformation in its impact on the domestic product growth rate. The analysis itself follows econometric estimates of relationships between the growth rate of an economy and an occurrence of a transition reform. These estimates, which are gathered from the relevant literature, are then applied to the Czech case, which allows obtaining explicit values of costs and benefits related to the transformation process. Results show that, in the short run, the transformation brought costs of hundreds billion Czech Koruna (CZK), measured in the 2005 price level. The total costs are estimated in the range 3300-3400 billion CZK. Nevertheless, the total result of the economic transformation is found to be positive – especially a quick external liberalization of the country reveals to be the most beneficial aspect of the transformation. Contrary, the largest costs are related to the large-scale privatization and the financial sector reforms.