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Shock Therapy versus Gradualism Reconsidered: Lessons from Transition Economies after 15 Years of Reforms1

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  • Vladimir Popov

    () ([1] New Economic School, Moscow, Russia. [2] Institute of European and Russian Studies (EURUS), Carleton University, Ottawa, Canada.)

Abstract

This paper starts by separating the transformational recession (reduction of output in most transition economies in the first half of the 1990s) from the process of economic growth (recovery from the transformational recession) in 28 transition economies (including China, Vietnam and Mongolia). It is argued that the former (the collapse of output during transition) can be best explained as adverse supply shock caused mostly by a change in relative prices after their deregulation due to distortions in industrial structure and trade patterns accumulated during the period of central planning, and by the collapse of state institutions during transition period, while the speed of liberalisation, to the extent it was endogenous, that is, determined by political economy factors, had an adverse effect on performance. In contrast, at the recovery stage the ongoing liberalisation starts to affect growth positively, whereas the impact of pre-transition distortions disappears. Institutional capacity and reasonable macroeconomic policy, however, continue to be important prerequisites for successful performance. Comparative Economic Studies (2007) 49, 1–31. doi:10.1057/palgrave.ces.8100182

Suggested Citation

  • Vladimir Popov, 2007. "Shock Therapy versus Gradualism Reconsidered: Lessons from Transition Economies after 15 Years of Reforms1," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 49(1), pages 1-31, March.
  • Handle: RePEc:pal:compes:v:49:y:2007:i:1:p:1-31
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    Cited by:

    1. Eicher, Theo S. & Schreiber, Till, 2010. "Structural policies and growth: Time series evidence from a natural experiment," Journal of Development Economics, Elsevier, vol. 91(1), pages 169-179, January.
    2. Iwasaki, Ichiro & Kumo, Kazuhiro, 2016. "Decline and Growth in Transition Economies: A Meta-Analysis," CEI Working Paper Series 2016-9, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    3. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1091-1126.
    4. Ichiro Iwasaki & Taku Suzuki, 2016. "Radicalism Versus Gradualism: An Analytical Survey Of The Transition Strategy Debate," Journal of Economic Surveys, Wiley Blackwell, vol. 30(4), pages 807-834, September.
    5. Vladimir Popov, 2009. "Why the West Became Rich before China and Why China Has Been Catching Up with the West since 1949: nother Explanation of the “Great Divergence” and “Great Convergence” Stories," Working Papers w0132, Center for Economic and Financial Research (CEFIR).
    6. Popov, Vladimir & Chowdhury, Anis, 2015. "What Uzbekistan tells us about industrial policy that we did not know?," MPRA Paper 67013, University Library of Munich, Germany.
    7. Vladimir A. Kozlov & Dina Y. Balalaeva, 2015. "Institutional Deficit and Health Outcomes in Post-Communist States," HSE Working papers WP BRP 25/PS/2015, National Research University Higher School of Economics.
    8. Csaba, László, 2009. "A szovjetológiától az új intézményi közgazdaságtanig - töprengések két évtized távlatából
      [From Sovietology to the new institutional economics - meditations from a distance of two decades]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 749-768.
    9. Popov, Vladimir, 2009. "Mortality Crisis in Russia Revisited: Evidence from Cross-Regional Comparison," MPRA Paper 21311, University Library of Munich, Germany, revised Dec 2009.
    10. Popov, Vladimir, 2010. "The Long Road to Normalcy," WIDER Working Paper Series 013, World Institute for Development Economic Research (UNU-WIDER).
    11. Popov, Vladimir, 2013. "Economic Miracle of Post-Soviet Space: Why Uzbekistan Managed to Achieve What No Other Post-Soviet State Achieved," MPRA Paper 48723, University Library of Munich, Germany.
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    13. da Rocha, Bruno T., 2015. "Let the markets begin: The interplay between free prices and privatisation in early transition," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 350-370.
    14. David Stuckler & Lawrence King & Greg Patton, 2009. "The Social Construction of Successful Market Reforms," Working Papers wp199, Political Economy Research Institute, University of Massachusetts at Amherst.
    15. Popov, Vladimir, 2009. "Lessons from the Transition Economies: Putting the Success Stories of the Postcommunist World into a Broader Perspective," WIDER Working Paper Series 015, World Institute for Development Economic Research (UNU-WIDER).
    16. Challet, Damien & Solomon, Sorin & Yaari, Gur, 2009. "The universal shape of economic recession and recovery after a shock," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 3, pages 1-24.
    17. repec:spr:scient:v:102:y:2015:i:3:d:10.1007_s11192-014-1513-2 is not listed on IDEAS
    18. Gevorkyan, Aleksandr V., 2015. "The legends of the Caucasus: Economic transformation of Armenia and Georgia," International Business Review, Elsevier, vol. 24(6), pages 1009-1024.
    19. Barbara Krug & Alexander Libman, 2015. "Commitment to local autonomy in non-democracies: Russia and China compared," Constitutional Political Economy, Springer, vol. 26(2), pages 221-245, June.
    20. Petr Rozmahel & Ludek Kouba & Ladislava Grochová & Nikola Najman, 2013. "Integration of Central and Eastern European Countries: Increasing EU Heterogeneity?," WWWforEurope Working Papers series 9, WWWforEurope.
    21. Aristei, David & Perugini, Cristiano, 2012. "Inequality and reforms in transition countries," Economic Systems, Elsevier, vol. 36(1), pages 2-10.
    22. Radmila Dragutinović Mitrović & Olgica Ivančev, 2010. "Driving Forces Of Economic Growth In The Second Decade Of Transition," Economic Annals, Faculty of Economics, University of Belgrade, vol. 55(185), pages 7-32, April - J.

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