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Bridging the technology-gap in economic transition, the J-curve of growth and unemployment

  • Hetze, Pascal
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    The macroeconomic experience has been somewhat ambiguous during the historic experiment of economic transition in the former centrally-planed countries in Central and East Europe (CEE). The economic restructuring produced a notable catching-up in terms of productivity but also a J-curve shape of output growth accompanied by an increase in unemployment on a large scale. This paper models the transformation progress which leads to these contradictory outcomes. Before transition initiated catching-up, the economies suffered from two limits to growth: a gap of usable capital and a gap of technologies. Accordingly, a rapid technology transfer from the advanced Western economies led to a significant technological and structural change combined with high rates of labor reallocation. If we include frictions in the consequent matching between job seekers and jobs, the model reproduces the pattern of productivity, growth and unemployment that we find in the CEE countries.

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    Paper provided by University of Rostock, Institute of Economics in its series Thuenen-Series of Applied Economic Theory with number 66.

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    Date of creation: 2006
    Date of revision:
    Handle: RePEc:zbw:roswps:66
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    1. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
    2. Gérard Roland & Thierry Verdier, 1999. "Transition and the output fall," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(1), pages 1-28, March.
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    5. Dariusz K. Rosati, 1994. "Output decline during transition from plan to market: a reconsideration," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(4), pages 419-441, December.
    6. John Haltiwanger & Hartmut Lehmann & Katherine Terrell, 2003. "Job Creation and Job Destruction in Transition Countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(2), pages 205-219, June.
    7. Ira N. Gang & Myeong-Su Yun, 2002. "Decomposing Inequality Change in East Germany During Transition," Departmental Working Papers 200220, Rutgers University, Department of Economics.
    8. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
    9. Arjun S. Bedi & Andrzej Cielik, 2002. "Wages and wage growth in Poland: The role of foreign direct investment," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 10(1), pages 1-27, March.
    10. Faggio, Giulia & Konings, Jozef, 2003. "Job creation, job destruction and employment growth in transition countries in the 90s," Economic Systems, Elsevier, vol. 27(2), pages 129-154, June.
    11. Felix Fitzroy & Michael Funke, 1998. "Skills, Wages and Employment in East and West Germany," Regional Studies, Taylor & Francis Journals, vol. 32(5), pages 459-467.
    12. Blanchard, Olivier, 1996. "Theoretical Aspects of Transition," American Economic Review, American Economic Association, vol. 86(2), pages 117-22, May.
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