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Patterns of Transition from Plan to Market


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


The transition from a planned economy to a market economy involves a complex process of institutional, structural, and behavioral change. This article develops an index of economic liberalization and analyzes its interaction with growth and inflation, using data from twenty-six transition countries for 1989-94. The article reveals two paradoxes of transition. First the attempt to maintain output by subsidizing enterprises results in larger declines in output than occur under a policy or reducing subsidies. Second, price liberalization results in lower inflation than occurs under a policy of continued price controls. Strong common patterns exist among countries at similar stages of reform. The common legacy and the associated changes that result from initial disruptions in the socialist economic coordinating mechanisms and subsequent liberalization measures go a long way toward explaining the transition experience. Because strong interactions between liberalization and stabilization are likely, stabilization becomes a priority for the resumption of growth. Copyright 1996 by Oxford University Press.

Suggested Citation

  • de Melo, Martha & Denizer, Cevdet & Gelb, Alan, 1996. "Patterns of Transition from Plan to Market," World Bank Economic Review, World Bank Group, vol. 10(3), pages 397-424, September.
  • Handle: RePEc:oup:wbecrv:v:10:y:1996:i:3:p:397-424

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    References listed on IDEAS

    1. Bennathan, E. & Escobar, L. & Panagakos, G., 1989. "Deregulation Of Shipping - What Is To Be Learned From Chile," World Bank - Discussion Papers 67, World Bank.
    2. Conlon, R M, 1982. "Transport Cost and Tariff Protection of Australian Manufacturing," The Economic Record, The Economic Society of Australia, vol. 58(160), pages 73-81, March.
    3. Francois, Joseph F & Wooton, Ian, 2001. "Trade in International Transport Services: The Role of Competition," Review of International Economics, Wiley Blackwell, vol. 9(2), pages 249-261, May.
    4. Venables, Anthony J. & Limao, Nuno, 2002. "Geographical disadvantage: a Heckscher-Ohlin-von Thunen model of international specialisation," Journal of International Economics, Elsevier, vol. 58(2), pages 239-263, December.
    5. Franck, Bernard & Bunel, Jean-Claude, 1991. "Contestability, competition and regulation : The case of liner shipping," International Journal of Industrial Organization, Elsevier, vol. 9(1), pages 141-159, March.
    6. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters,in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc.
    7. Trujillo, Lourdes & Nombela, Gustavo, 1999. "Privatization and regulation of the seaport industry," Policy Research Working Paper Series 2181, The World Bank.
    8. J. M. Finger & A. J. Yeats, 1976. "Effective Protection by Transportation Costs and Tariffs: A Comparison of Magnitudes," The Quarterly Journal of Economics, Oxford University Press, vol. 90(1), pages 169-176.
    9. Waters, W G, II, 1970. "Transport Costs, Tariffs, and the Pattern of Industrial Protection," American Economic Review, American Economic Association, vol. 60(5), pages 1013-1020, December.
    10. Joseph Francois & Hugh M. Arce & Kenneth A. Reinert & Joseph E. Flynn, 1996. "Commercial Policy and the Domestic Carrying Trade," Canadian Journal of Economics, Canadian Economics Association, vol. 29(1), pages 181-198, February.
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