The rise and decline of gradualism in Slovenia

Slovenia is a typical representative of a gradualist approach to transition. The prevailing view in Slovenia is that the gradualist approach has been the best solution. Contrary to this view, this article claims that the gradualist approach to transition gives positive results in the initial period but gradually reduces the pace of reform and leads to the postponement of some necessary steps, resulting in worsening economic trends. It provides empirical evidence in support of this thesis, indicating (i) gradual worsening of the level of export competitiveness and lagging behind in the restructuring of the Slovenian manufacturing sector, thus slowing down the process of real convergence; (ii) that the most important reason for persistent inflation, which is the major problem of Slovenia's nominal convergence, is structural—slow restructuring in tradables and lack of reform in non-tradables—and is a direct consequence of a slow transition process. The article concludes that the exogenous shock of EU accession, which puts pressure on economic policy, is welcome for the badly needed acceleration of the reform process in Slovenia. Economic policy should use this exogenous shock for the accomplishment of the remaining structural reforms.