IDEAS home Printed from
   My bibliography  Save this paper

Start-ups and Transition


  • David J. Cooper
  • Daniel M. Berkowitz


How fast transition should occur and how fast privatization and/or entry should take place in formerly socialist economies has been widely debated by economists. The field evidence on start-ups is mixed, with fragmentary data indicating that the performance of start-ups varies widely across countries. The evidence suggests that two vastly different equilibria are emerging in transition economies: a high development equilibrium and a low development equilibrium. In the high development equilibrium start-ups supply higher quality goods than transforming SOES, aggregate supplies are ample and start-ups are a growth engine. This contrasts with the low development equilibrium in which start-ups provide lower quality goods and the overall supply of goods is lower. In this paper, we develop a dynamic model which explains how features of the transition can push an economy to either the high or low development equilibrium in the long run. We concentrate on the speed with which bureaucratic interference in the economy is eliminated and the speed with which entry by private firms occurs. Our central conclusion is that delayed entry by start-ups can substantially increase the likelihood of the high development outcome, especially when bureaucratic interference is persistent. Our result captures how this interference, while transitory, can have a negative long run impact and underlines the importance of government polices to encourage entrepreneurship, such as subsidies and tax breaks.

Suggested Citation

  • David J. Cooper & Daniel M. Berkowitz, 1997. "Start-ups and Transition," William Davidson Institute Working Papers Series 84, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:1997-84

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Micklewright, John & Nagy, Gyula, 1996. "Labour market policy and the unemployed in Hungary," European Economic Review, Elsevier, vol. 40(3-5), pages 819-828, April.
    2. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-782, July.
    3. Lubyova, Martina & van Ours, Jan, 1997. "Unemployment dynamics and the restructuring of the Slovak unemployment benefit system," European Economic Review, Elsevier, vol. 41(3-5), pages 925-934, April.
    4. van Ours, Jan C, 1994. "Matching Unemployed and Vacancies at the Public Employment Office," Empirical Economics, Springer, vol. 19(1), pages 37-54.
    5. Earle, John S. & Pauna, Catalin, 1996. "Incidence and duration of unemployment in Romania," European Economic Review, Elsevier, vol. 40(3-5), pages 829-837, April.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Stepán Jurajda & Katherine Terrell, 2003. "Job growth in early transition: Comparing two paths ," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(2), pages 291-320, June.
    2. Frensch, Richard, 2004. "Public governance as the source of quality and variety gains from transition," Journal of Comparative Economics, Elsevier, vol. 32(3), pages 388-408, September.
    3. Earle, John S. & Sakova, Zuzana, 1999. "Entrepreneurship from Scratch: Lessons on the Entry Decision into Self-Employment from Transition Economies," IZA Discussion Papers 79, Institute for the Study of Labor (IZA).
    4. Maxim Bouev, 2004. "Diverging Paths: Transition in the Presence of the Informal Sector," William Davidson Institute Working Papers Series 2004-689, William Davidson Institute at the University of Michigan.
    5. Basareva Vera, 2002. "Institutional Peculiarities of Small Business in Russia's Regions," EERC Working Paper Series 02-02e, EERC Research Network, Russia and CIS.
    6. Luigi Sacco, Pier & Scarpa, Carlo, 2000. "Critical mass effect and restructuring in the transition towards a market economy," European Economic Review, Elsevier, vol. 44(3), pages 587-608, March.

    More about this item


    adaptive learning; transition;

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wdi:papers:1997-84. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (WDI). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.