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The Second Transition; Eastern Europe in Perspective

  • Daniel Leigh
  • Stefania Fabrizio
  • Ashoka Mody

The countries of Eastern Europe achieved two remarkable transitions in the short period of the last two decades: from plan to market and, then, in the run-up to and entry into the European Union, they rode a wave of global trade and financial market integration. Focusing on the second transition, this paper reaches three conclusions. First, by several metrics, East European and East Asian growth performances were about on par from the mid-1990s; both regions far surpassed Latin American growth. Second, the mechanisms of growth in East Europe and East Asia were, however, very different. East Europe relied on a distinctive-often discredited-model, embracing financial integration with structural change to compensate for appreciating real exchange rates. In contrast, East Asia contained further financial integration and maintained steady or depreciating real exchange rates. Third, the ongoing financial turbulence has, thus far, not had an obviously differential impact on emerging market regions: rather, the hot spots in each region reflect individual country vulnerabilities. If the East European growth model is distinctive, is it sustainable and replicable? The paper speculates on the possibilities.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/43.

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Length: 35
Date of creation: 01 Mar 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/43
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  1. Ashoka Mody & Stefania Fabrizio, 2006. "Can Budget Institutions Counteract Political Indiscipline?," IMF Working Papers 06/123, International Monetary Fund.
  2. Sabine Herrmann & Adalbert Winkler, 2009. "Real convergence, financial markets, and the current account - Emerging Europe versus emerging Asia," European Economy - Economic Papers 362, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  3. Menzie D. Chinn & Hiro Ito, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," NBER Working Papers 11370, National Bureau of Economic Research, Inc.
  4. Hausmann, Ricardo & Pritchett, Lant & Rodrik, Dani, 2004. "Growth Accelerations," Working Paper Series rwp04-030, Harvard University, John F. Kennedy School of Government.
  5. Ashoka Mody & Deniz Igan & Stefania Fabrizio, 2007. "The Dynamics of Product Quality and International Competitiveness," IMF Working Papers 07/97, International Monetary Fund.
  6. Herrmann, Sabine & Winkler, Adalbert, 2008. "Financial markets and the current account: emerging Europe versus emerging Asia," Discussion Paper Series 1: Economic Studies 2008,05, Deutsche Bundesbank, Research Centre.
  7. Benjamin F. Jones & Benjamin A. Olken, 2005. "The Anatomy of Start-Stop Growth," NBER Working Papers 11528, National Bureau of Economic Research, Inc.
  8. Susan Schadler & Pipat Luengnaruemitchai, 2007. "Do Economists' and Financial Markets' Perspectiveson the New Members of the Eu Differ?," IMF Working Papers 07/65, International Monetary Fund.
  9. Ashoka Mody & Stefania Fabrizio, 2008. "Breaking the Impediments to Budgetary Reforms; Evidence From Europe," IMF Working Papers 08/82, International Monetary Fund.
  10. Eswar Prasad & Raghuram G. Rajan & Arvind Subramanian, 2006. "Patterns of international capital flows and their implications for economic development," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 119-158.
  11. Stefania Fabrizio & Ashoka Mody, 2006. "Can budget institutions counteract political indiscipline?," Economic Policy, CEPR;CES;MSH, vol. 21(48), pages 689-739, October.
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