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Shock Therapy Versus Gradualism Reconsidered: Lessons From Transition Economies After 15 Years Of Reforms

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  • Vladimir Popov

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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 liberalization, to the extent it was endogenous, i.e. determined by political economy factors, had an adverse effect on performance. In contrast, at the recovery stage the ongoing liberalization 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.

Suggested Citation

  • Vladimir Popov, 2006. "Shock Therapy Versus Gradualism Reconsidered: Lessons From Transition Economies After 15 Years Of Reforms," Working Papers w0068, Center for Economic and Financial Research (CEFIR).
  • Handle: RePEc:cfr:cefirw:w0068
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    Cited by:

    1. Marcello Signorelli & Enrico Marelli, 2007. "Institutional change, regional features and aggregate performance in eight EU’s transition countries," Quaderni del Dipartimento di Economia, Finanza e Statistica 37/2007, Università di Perugia, Dipartimento Economia.
    2. 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.
    3. Polterovich, Victor & Popov, Vladimir, 2007. "Democratization, Quality of Institutions and Economic Growth," MPRA Paper 19152, University Library of Munich, Germany.
    4. Popov, Vladimir, 2010. "Is Chinese variety of capitalism really unique?," MPRA Paper 28109, University Library of Munich, Germany.
    5. 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.
    6. Alexei Izyumov & Trista Claxon, 2009. "Models of Capitalism and Income Distribution in Transition Economies: A Comparative Perspective," Journal of Economic Issues, Taylor & Francis Journals, vol. 43(3), pages 733-758.
    7. Kolodko, Grzegorz W., 2009. "A Two-thirds Rate of Success: Polish Transformation and Economic Development, 1989-2008," WIDER Working Paper Series 014, World Institute for Development Economic Research (UNU-WIDER).
    8. Polterovich, Victor & Popov, Vladimir, 2007. "Демократизация И Экономический Рост
      [Democratization and Economic Growth]
      ," MPRA Paper 23012, University Library of Munich, Germany.
    9. 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.
    10. Polterovich, Victor & Popov, Vladimir & Tonis, Alexander, 2009. "Концентрация Доходов, Нестабильность Демократии И Экономический Рост
      [Income Concentration, Instability of Democracy and the Economic Growth]
      ," MPRA Paper 27561, University Library of Munich, Germany.
    11. Polterovich, Victor, 2008. "Современное Состояние Теории Экономических Реформ
      [Modern Condition of the Theory of Economic Reforms]
      ," MPRA Paper 22032, University Library of Munich, Germany.

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