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On the Speed of Transition Central Europe

Author

Listed:
  • Philippe Aghion
  • Olivier Jean Blanchard

Abstract

Transition in Central Europe is four years old. State firms which dominated the economy are struggling with market forces. A new private sector quickly emerged and has taken hold. Unemployment, which did not exist, is high and still increasing. Will this process of transition accelerate, or slow down? Will unemployment keep increasing? Can things go wrong and how? Our paper represents a first pass at answering those questions. The basic structure of the model we develop is standard, that of the transition from a low to a high productivity sector. But we pay attention to two aspects which strike us as important. The first is the interactions between unemployment and the decisions of both state and private firms. The second are the idiosyncracies which come from the central planning legacy, from the structure of control within state firms to the lack of many market institutions, which limits private sector growth. We start with a description of transition in Poland so far. We then develop a model and use it to think about the determinants of the speed of transition and the level of unemployment. Finally, we return to the role of policy and the future in Poland, as well as the causes of cross-Central European country variations.

Suggested Citation

  • Philippe Aghion & Olivier Jean Blanchard, 1994. "On the Speed of Transition Central Europe," NBER Working Papers 4736, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:4736
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    References listed on IDEAS

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    1. Ricardo J. Caballero & Mohamad L. Hammour, 1996. "On the Timing and Efficiency of Creative Destruction," The Quarterly Journal of Economics, Oxford University Press, vol. 111(3), pages 805-852.
    2. Alain de Crombrugghe & David Lipton, 1994. "The Government Budget and the Economic Transformation of Poland," NBER Chapters,in: The Transition in Eastern Europe, Volume 2: Restructuring, pages 111-136 National Bureau of Economic Research, Inc.
    3. Andrew Atkeson & Patrick J. Kehoe, 1993. "Industry evolution and transition: the role of information capital," Staff Report 162, Federal Reserve Bank of Minneapolis.
    4. J Rostowski, 1993. "The Implications of Rapid Private Sector Growth in Poland," CEP Discussion Papers dp0159, Centre for Economic Performance, LSE.
    5. Qimiao Fan & Mark E. Schaffer, 1994. "Government financial transfers and enterprise adjustments in Russia, with comparisons to Central and Eastern Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(2), pages 151-188, June.
    6. Guillermo A. Calvo & Fabrizio Coricelli, 1993. "Output Collapse in Eastern Europe: The Role of Credit," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 32-52, March.
    7. Brian Pinto & Marek Belka & Stefan Krajewski, 1993. "Transforming State Enterprises in Poland: Evidence on Adjustment by Manufacturing Firms," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 24(1), pages 213-270.
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    More about this item

    JEL classification:

    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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