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Abstract
It is unclear who first classified countries that are attempting to develop market economies into a single group of « emerging markets » or « emerging market economies ». These countries can be divided into at least two sub-groups. One group of countries is presently emerging from underdevelopment while the other group is composed of « transition economies », which are emerging from the communist economic and political system. The main goal of this paper is to investigate to what extent the different heritage and therefore initial conditions are distinct enough to justify the separate treatment of these two groups. The author first surveys the main issues of economic development and their relevance to transition and, second, the structural and institutional differences between transition economies and underdeveloped economies.
JEL classifications : P20, O10, P52
... Quelques-unes de ces constatations sont étayées par des chiffres (tableau n°4), ainsi les comparaisons de l'« Indice de liberté économique » mis au point par la Heritage Foundation (1999, pp. 30-34 World, 1996(Ofer, 1999. ...
... Les économies en transition plus avancées, dotées d'une base institutionnelle plus solide et d'une structure moins faussée, auraient peut-être pu réussir leur changement. Elles avaient l'avantage de bénéficier d'une assistance extérieure plus importante (graphique n° 1 ;Ofer, 1999, tableau n° 4 et BERD, 1998. Les économies en transition moins développées, situées essentiellement en Asie Centrale, ont un défi beaucoup plus important à relever sur le plan institutionnel, même si l'on peut penser qu'elles vont très vraisemblablement prendre un chemin de développement plus ou moins « normal », semblable à celui des économies en développement à niveau de développement comparable 13 . ...
... Ofer, (1999), tableau n° 4. Voir les sources du tableau n° 1 ci-dessus. ...
Development and Transition : Emerging, but Merging ?
It is unclear who first classified countries that are attempting to develop market economies into a single group of « emerging markets » or « emerging market economies ». These countries can be divided into at least two sub-groups. One group of countries is presently emerging from underdevelopment while the other group is composed of « transition economies », which are emerging from the communist economic and political system. The main goal of this paper is to investigate to what extent the different heritage and therefore initial conditions are distinct enough to justify the separate treatment of these two groups. The author first surveys the main issues of economic development and their relevance to transition and, second, the structural and institutional differences between transition economies and underdeveloped economies.
JEL classifications : P20, O10, P52
... The above-discussed instances are relevant for transition economies as well. While transition economies share many characteristics with developing countries, they are distinct due to the political economy of the Soviet Union and the historical absence of a private sector (Ofer 2001;Keren and Ofer 2007). It is worth noting that case studies on transition economies in the TH literature are underrepresented (see Galvao et al. 2019), and the existing post-Soviet TH research is dominated by Russia (see Bychkova et al. 2015;Dezhina 2015;Grasmik 2015;Balzer and Askonas 2016), leaving the rest of the post-Soviet context mostly unexplored for TH research. ...
Transition economies, on the one hand, grapple with a communist legacy; on the other hand, they seek the optimal institutionalization for knowledge generation, dissemination, and commercialization to compete globally. However, the incumbent knowledge of certain aspects of their innovation systems remains very limited. In particular, intra-organizational cultural relics of the past and their inter-organizational and, consequently, systemic implications require research. This study examines how interaction barriers among universities, industry, and government, stemming from intra-organizational cultures, impact structural change in the innovation system of Azerbaijan. Utilizing the TH model, interviews with 59 participants revealed that a “Statist” TH model in Azerbaijan hinders organic cultural development within organizations, leading to interaction issues among TH actors. Moreover, problems in inter-organizational communication pave the way for a systemic failure that necessitates government intervention, strengthening the “Statist” TH model. The findings increase the context sensitivity of the TH framework by exploring an understudied context and provide valuable insights relevant to other transition economies facing similar institutional legacies.
... In it we first summarize, on the basis of previous literature the stylized characteristics of the two sets of institutions, the dissonance between them and the problems involved in moving from one to the other. This discussion in based to a large extent on Ofer (2001Ofer ( , 2003Ofer ( , 2004) and on references therein. We then estimate the institutional diversion of different groups of transition economies from "normal" patterns at comparable levels of development (á la Kuznets). ...
The view that the socialist past of the transition economies (TEs) is irrelevant and that these economies should now be considered as just another group of developing, low or middle income countries, has been gaining many adherents. This overlooks, so we believe, the fact that transition is path dependent and that the process of transition cannot be understood without regard to the socialist heritage. This heritage is relevant in many aspects of the transition process, but it is probably most important in the transformation of the institutional infrastructure from that of the old regime to institutions of a market economy and a democratic society. This paper focuses on the transition of this institutional infrastructure. In it we first summarize, on the basis of previous literature, the stylized characteristics of the two sets of institutions, the dissonance between them and the problems involved in moving from one to the other. This discussion in based to a large extent on Ofer (2001, 2003, 2004) and on references therein. We then estimate the institutional diversion of different groups of TEs from ‘normal’ patterns at comparable levels of development (à la Kuznets). The empirical analysis is based mostly but not exclusively on the database of the Governance and Anti-Corruption project of the World Bank Institute (WBI; Kaufmann et al., 2005). In the analysis that follows we relate the gaps to the specific socialist institutional heritage and underline the differences in the nature of the problems and solutions of building new institutions that stem from this heritage.
... This paper adds to a growing literature that discusses the specific nature of the transition economies, e.g., Gros and Suhrcke (2000) and Ofer (2000). Our results indicate that initial conditions differentiate transition economies from other groups of developing and developed countries, but also that the legacies of central planning are resilient. ...
The favored approach in the literature on the growth prospects for transition economies is based on specifications from Barro (1991) and Levine and Renelt (1992). This paper examines this literature critically by identifying and testing for the underlying assumptions. Our main finding is that this approach performs poorly in the transition context. Our results indicate that, almost a decade after the transition began, the former centrally planned economies are still structurally different from market economies at similar levels of per capita income. The legacies of central planning are more resilient than previously thought. J. Comp. Econ., December 2001, 29(4), pp. 663–676. University of Newcastle, Newcastle upon Tyne, and Centre for Economic Policy Research, London, United Kingdom; and The William Davidson Institute at the University of Michigan, Ann Arbor, Michigan. © 2001 Elsevier ScienceJournal of Economic Literature Classification Numbers: E23, O40, P20, P52.
This study examines the institutional challenges of fostering both sustainability initiatives and innovation in Azerbaijan, focusing on their reciprocal relationship in correspondence to technological advancement. While Azerbaijan aims to align with global trends in sustainable development, the legacy of its Soviet-era institutional framework— characterized by centralized governance structures, formal regulatory approaches, and limited private sector engagement—presents unique constraints to progress. Using a historical institutionalist framework, the study analyzes how inherited structures shape the country’s path-dependent development, impacting both its innovation ecosystem and sustainability trajectory. Findings derived from qualitative interviews with policymakers, scholars, entrepreneurs, and environmental experts illustrate how the mutual reinforcement between sustainable practices and innovation can stimulate technological growth and how innovation, in turn, can support environmental goals within a post-Soviet institutional context. This study provides insights into the institutional adaptations necessary to foster a sustainable and innovative economy in transition contexts like Azerbaijan, contributing to broader discussions on sustainability and innovation in post- Soviet economies.
Over the past decades, political scientists have studied how the policies and ideas of one political setting are used in the development of policies in another political setting, a process known as ‘policy transfer’. In the case of such transfer from one country to another, the role of various institutions and networks as ‘agents’ of policy transfer becomes central. Many researchers have mapped the role of the international donor community as an agent of transfer of Integrated Water Resources Management (IWRM) principles in developing economies. This article examines the case of 11 transition economies from Eastern Europe, Caucasus and Central Asia (EECCA) to establish whether the role of the international donor community has been similar in exporting the IWRM concept, along with its key river basin principle, into national legislation. Roughly a decade after these 11 former Soviet republics gained independence in 1991, a ‘window of opportunity’ emerged when the need arose to revise the national water legislation that had been developed according to old Soviet approaches. The present analysis finds that international donors such as the EU, the US and UN agencies have played a significant role as transfer agents, being involved in shaping at least 18 out of 23 key national water laws, programmes or concepts in the selected countries between 2002 and 2023. The article concludes that 10 countries have adopted IWRM basin management principle and one is expected to follow soon as a result of a process involving international donor engagement.
This chapter focuses on macroeconomic aspects of privatisation. It considers ways in which privatisation might help (or conceivably hinder) the transition economies’ macroeconomic objectives. Chief among the latter is the aim of catching up with successful market economies, following several decades in which the centrally planned economies of the former Soviet Union and Eastern Europe fell progressively further behind per capita real income levels in industrialised market economies (Ofer, 1987). The aim of this chapter is to consider how privatisation might contribute towards increased growth rates in transition economies. For this purpose we need to understand the determinants of economic growth. The first part briefly introduces key ideas about economic growth, and considers how privatisation might play a role. It argues that whilst privatisation has the potential to raise growth rates, this depends crucially upon the presence of a range of facilitating factors which were often missing at the start of transition. Some of these facilitating factors, for example well-functioning capital markets, have already received extensive treatment in the literature. One important facilitating factor which has received less emphasis, however, is human capital. The rela-tionship between privatisation and human capital is the main focus of the chapter.
Banking FDI: If it is so Beneficial, Why is it so Slow to Enter Transition Economies?
by
Michael Keren
and
Gur Ofer
Department of Economics, Hebrew University of Jerusalem
Abstract
In a previous paper of ours we have argued that the entry of foreign banks to transition economies is beneficial, even indispensable, for the success of the transition process. We have also observed that such entry, which by the end of the 1990s has meant the almost complete takeover by foreign banks of the banking sector in most of Eastern Europe, was a unique phenomenon among all developing regions. Foreign entry to Eastern European transition economies was, nevertheless very slow to start, and in the former Soviet Union and most other CIS countries no significant entry has as yet taken place. In the current paper we are trying to come to grips with the Whys of this process: Why in Eastern Europe and not in Russia? Why only at a late stage in Eastern Europe? And why did entry times in Eastern Europe vary?
We have established conceptually that banking FDI is highly profitable to both the investors and the recipient economy, but that there are preconditions to entry and there are potential losers. The preconditions relate to the protection of the investment and the investor from unfair practices and expropriation. This requires inter alia radical changes in the legal framework and the establishment of effective legal enforcement and banking controls. But the very existence of foreign banks can help legal the required changes and the banking regulator, because foreign banks can add their political pressure and contribute their professional and administrative skills to perform these functions. The potential losers from foreign entry, both local banks and their clients or controlling producer firms, as well as large established firms or industrial groups, may also try to hinder entry by blocking legal and organizational changes. It is the potential new and smaller firms which—unlike large and established firms with easy access to funds through existing banks—lack internal funds, are the main clients of the new financial sector (Rajan and Zingales, 1998) . They are also the main drivers of transition and transformation. The persistence and domination in some of these countries of a state bank, also a potential loser, is another obstacle. We are thus faced with a problem to disentangle: is entry needed in order to establish the preconditions for entry?
Our paper will have a theoretical and an empirical part. In the theoretical part we shall discuss the mutual relationship between various characteristics of the regime including the underlying political economic structure. To what extent the resolve of the regime in the protection of property and in the enforcement of the rule of law can evolve either in a direction that favors the entry of banking FDI or in a direction that repels it. What is the political power of vested interests (of forces of the old regime) to prevent financial reforms? In what way are entry and honest banking favoring reforms complementary?
In the empirical part we will compare the movement of various indices of the rule of law, of property protection and of governance characteristics over time and examine their relation to the development of the banking sector in transition countries, in order to test to what extent extant economic and legal data throw light on this chicken or egg quandary. The countries represented will belong to two groups: European CIS countries, and Eastern European EU candidates. In a parallel part we shall try to examine the historical record and analyze the background to the entry of foreign banks in various countries, in order to find evidence of the obstacles that hindered entry at certain times and places, and whose disappearance made entry possible.
The Russian Federation provides a valuable laboratory to study the impact of political forces on the process of structural reform. We examine changes in the industrial structure of employment across Russian regions and assess the importance of legacy factors, political factors, and success factors in explaining this process. We discuss the problems introduced by federalism in the transition process. We find that initial conditions such as natural resource potential, climate, and industrial specialization explain more of the variation in industrial restructuring than political variables.
Reform in China and Russia
Jeffrey Sachs and Wing Thye Woo
China's experience does not show that gradual reform is superior to the shock therapy undertaken in Eastern Europe and the Former Soviet Union (EEFSU). Differing performance primarily reflects different economic structures prior to reform: China was a peasant agricultural society, EEFSU was urban and overindustrialized. In both, jobs in state enterprises were so heavily subsidized that workers refused to move to new industries elsewhere, even when productivity in the latter was much higher. In EEFSU the large state sector impeded structural adjustment. Curtailing subsidies would have produced many losers who used their power to resist this outcome; failure to curtail subsidies then cut off the potential supply of labour and other factors to new emerging firms. China's state enterprises have not performed as well as the rest of the Chinese economy and do not explain its success; rapid growth was possible because the large agricultural sector contained vast surplus labour, and did not enjoy subsidies and soft budget constraints. Once constraints on migration across regions and jobs were removed, this labour was available to fuel expansion in new industries. Unlike the distributional conflict in EEFSU, in China reallocation of labour allowed all groups to gain.
In both, partial liberalization also unleashed macroeconomic pressures, manageable in China because of rapid growth and adequate monetary policy, but explosive in much of EEFSU because of deeper structural problems and gross monetary mismanagement.
For a decade, the former socialist economies have been in transition to a promised land of western standards of living. How long should transition take? To answer this question, we should define our expectations, and we should specify the indicators that would tell us when the transition is over. We have applied the term "transition" to particular countries with a common background. We do not refer to the poorer countries of Africa as in being transition. We appear to have different expectations about progress in Africa. The different expectations have been expressed in the terms "underdevelopment" and "maldevelopment". The terminology seems directed at political incorrectness of the different expectations.
Transition in Central and Eastern Europe has led to a U‐shaped response of output, that is, a sharp decline in output followed by recovery. Six years after the beginning of transition, most of the countries of Central Europe now seem firmly on the upside. Most of the countries of Eastern Europe are still close to the bottom of the U; an optimistic view is that they are now negotiating the turn.
This U‐shaped response of output, its causes and its implications, is the subject of this book. That transition came with an often‐large initial decrease in output should be seen as a puzzle. After all, the previous economic system was characterized by myriad distortions. One might have expected that removing most of them would lead to a large increase, not decrease in output. This is not what happened. The purpose of this book is to understand why, and to draw general lessons.
We develop a theory for a transition economy under which an unbalanced development strategy that favors special economic zones emerges as a response to two critical problems: (1) political pressure to satisfy certain social expenditure requirements and (2) the lack of institutions to constrain the state from expropriation. By promoting the concentration of resources in some areas, a low equilibrium trap can be avoided, while important spillover effects may be generated elsewhere. The experience of China with special economic zones and coastal open areas is interpreted in this light. Some problems in the Russian economy are also discussed in the context of this theory.J. Comp. Econom.,March 1998, 26(1), pp. 117–141. Stanford University, Stanford, California 94305-6072.
The main challenge of the transition has been to redefine how the state interacts with firms, but little attention has been paid to the flip side of the relationship : how firms influence the state - especially how they exert influence on, and collude with public officials to extract advantages. Some firms in transition economies have been able to shape the rules of the game to their own advantage, at considerable social cost, creating what the authors call a"capture economy"in many countries. In the capture economy, public officials, and politicians privately sell under-provided public goods, and a range of rent-generating advantages"a la carte"to individual firms. The authors empirically investigate the dynamics of the capture economy, on the basis of new firm-level data from the 1999 Business Environment and enterprise performance survey (BEEPS), which permits the unbundling of corruption into meaningful, and measurable components. they contrast state capture (firms shaping, and affecting formulation of the rules of the game through private payments to public officials, and politicians) with influence (doing the same without recourse to payments), and with administrative corruption ("petty"forms of bribery in connection with the implementation of laws, rules, and regulations). They develop economy-wide measures for these phenomena, which are then subject to empirical measurement utilizing the BEEPS data. State capture, influence, and administrative corruption are all shown to have distinct causes, and consequences. Large incumbent firms with formal ties to the state tend to inherit influence as a legacy of the past, and tend to enjoy more secure property, and contractual rights, and higher growth rates. To compete against these influential incumbents, new entrants turn to state capture as a strategic choice - not as a substitute for innovation, but to compensate for weaknesses in the legal, and regulatory framework. When the state under-provides the public goods needed for entry and competition,"captor"firms purchase directly from the state, such private benefits as secure property rights, and removal of obstacles to improved performance - but only in a capture economy. Consistent with empirical findings in previous research on petty corruption, administrative corruption - unlike both capture and influence - is not associated with specific benefits for the firm. The focus of reform should be shifted toward channeling firms'strategies in the direction of more legitimate forms of influence, involving societal"voice", transparency reform, political accountability, and economic competition, Where state capture has distorted reform to create (or preserve) monopolistic structures, supported by powerful political interests, the challenge is particularly daunting.
This article takes an integrated approach to evaluating the interaction of initial conditions, political change, reforms and economic performance in a unified framework covering 28 transition economies in East Asia, Central and Eastern Europe, and the FSU. Initial conditions and economic policy jointly determine the large differences in economic performance among transition economies. Initial conditions dominate in explaining inflation, but economic liberalization is the most important factor determining differences in growth. Political reform emerges as the most important determinant of the speed and comprehensiveness of economic liberalization, raising the important question of what determines political liberalization. Results suggest the importance of the level of development in determining the decision to expand political freedoms.
Corruption is attracting a lot of attention around the world. This paper surveys and discusses issues related to the causes, consequences, and scope of corruption, and possible corrective actions. It emphasizes the costs of correction in terms of economic growth. It also emphasizes that the fight against corruption may not be cheap and cannot be independent from the reform of the state. If certain reforms are not made, corruption is likely to continue to be a problem regardless of actions directly aimed at curtailing it. Copyright 1998, International Monetary Fund
This paper considers the prospects for constructing a neoclassical theory of growth and international trade that is consistent with some of the main features of economic development. Three models are considered and compared to evidence: a model emphasizing physical capital accumulation and technological change, a model emphasizing human capital accumulation through schooling, and a model emphasizing specialized human capital accumulation through learning-by-doing.
This article takes an integrated approach to evaluating the interaction of initial conditions, political change, reforms and economic performance in a unified framework covering 28 transition economies in East Asia, Central and Eastern Europe, and the Former Soviet Union (FSU). Initial conditions and economic policy jointly determine the large differences in economic performance among transition economies. Initial conditions dominate in explaining inflation, but economic liberalization is the most important factor determining differences in growth. Political reform emerges as the most important determinant of the speed and comprehensiveness of economic liberalization, raising the important question of what determines political liberalization. Results suggest the importance of the level of development in determining the decision to expand political freedoms.
This paper analyses the incidence and growth of non-monetary transactions - barter, veksels, debt offsets, tax offsets and other money surrogates - in Russia. The empirical backbone of the paper is a survey of 350 - predominantly industrial - firms, carried out in October and November 1998. The paper provides an analytical framework for understanding both firm-level incentives for using barter and the reasons for its phenomenal growth since 1993. Having examined some of the costs of Russia's non- monetary economy, the paper discusses a number of policy options.
Given the dramatic divergence of postwar performance across the developing world despite almost half a century of accumulated technical expertise in the advice offered by the academic and donor communities, it has become increasingly clear that a study of differential development patterns over time requires an analysis of not only what happened but also why it happened. This paper seeks to bridge this gap by attempting to endogenize policy choice in different developing country settings in order to elucidate why similar policy advice is so often differently received. It is my basic premise that a country's initial conditions—its natural resource endowment, organic nationalism, and ability to attract foreign capital—explain why some LDCs pursue a relatively linear path toward “modem-growth” organizational characteristics, while others exhibit policy oscillations en route. A theoretical framework is developed to trace such causal relationships as they play themselves out in a political economy context over time. The policy responses to external shocks of Mexico, the Philippines and Taiwan, three countries differing in terms of various dimensions of their initial conditions, are then examined, along with their consequent performance over the past thirty years in order to empirically test the hypotheses laid out in the framework.
The paper both compares productivity of Russian firms that have foreign direct investments with productivity of fully domestically owned firms and analyses spillovers from foreign-owned firms to domestic firms. Foreign firms are found to be more productive than domestic ones, but productivity of the former is negatively affected by slow progress of reforms in the regions where they operate. It is also found that there are positive spillovers from foreign-owned firms to domestic firms in the same industry, but negative effects on domestic firms that are vertically related to foreign-owned firms. The stock of human capital in regions where foreign firms operate is one of the factors which help domestic firms to benefit from the entry of foreign firms.
The great transformation undertaken by the countries of the former communist bloc exhibits immense diversityDSin terms of initial conditions, shifting target models, consistency, paths, speed, progress to date, and economic performance. This is the first comprehensive study of the economics and politics of postsocialism to be written by an author so deeplyDSand so successfullyDSinvolved in the reform process. Many people writing on the reform process offer advice that is not really credible; as a member of the Polish government, and architect of the successful Polish reform, Grzegorz Kolodko actually solved many of the difficulties of transition, which allows him to come forward here with policy proposals and long-term forecasts. The treatment of the transition from plan to market as a historical process is an important feature of the book. The author claims that there is no historical fatalityDSthat sound policies in the present are more determining than the favourable or unfavourable legacies of the past. The aim is to create and maintain the conditions for sustainable growth and durable development. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/9780198297437/toc.html
This book authoritatively considers the phenomenon of the severe economic crises of the 1970s and 1980s, as exemplified by the combination of high inflation and negative growth in Israel and Latin America. The author analyses the common characteristics of such processes and their possible curesDSwith a detailed first-hand account of Israeli stabilization policy, and a comparative policy-oriented analysis of Latin American reforms. Professor Bruno also calls on his experience to give a preliminary evaluation of recent stabilizations and reform attempts in several East European economies. The discussion of the theoretical underpinnings of `shock' treatments provides a good example for the blending of a number of disciplines: lessons of economic history; open economy monetary and macro theory; game-theoretic applications to the theory of economic policy design (concepts such as dynamic inconsistency, government reputation, and credibility); and the rationalization of incomes policy. The Clarendon Lectures in Economics were established in 1987. They consist of coherent sets of three or four lectures given by distinguished economists which are accessible to advanced undergraduates and also of interest to academics. Subjects vary from high theory and applications of theory to policy-oriented topics. Lecturers include Professors J.-M. Grandmont, David Kreps, Kenneth Arrow, Angus Deaton, Robert Schiller, and Oliver Hart. Available in OSO: http://www.oxfordscholarship.com/oso/public/content/economicsfinance/0198286635/toc.html
This paper analyses the role of foreign banks in the Czech Republic, Estonia, Hungary, and Poland. With respect to their planned EU membership, these countries have to consider the full implementation of free trade in financial services. Generally, liberalizing the market access of foreign banks allows the production of financial services according to comparative advantage, it fosters competition, it promotes bank privatization, and it facilitates a transfer of know-how into the emerging financial systems. The most important sequencing issue that arises is that the incumbent banks should have been recapitalized for their truly inherited bad loans before markets are opened up. In view of the reform progress that has already been made in the countries under review, abolishing remaining entry barriers is unlikely to put the stability of banking systems at risk while allowing the benefits of open markets to be exploited. Copyright The European Bank for Reconstruction and Development, 1997.
After several years of transition experience the theory is very poorly developed except in regard to macroeconomtc stabilization. Another key dimension of transition is institutional change to provide the organizational infrastructure for a market economy. Such issues are analysed here through a series of models focusing on: uncertainty of outcomes, complementarities and interactions between reforms, and political constraints. The choice between "big bang" and more gradualist strategies is studied under various conditions and the paper also examines specific incentive and allocative aspects of the transition from socialism to capitalism. Copyright 1996 The European Bank for Reconstruction and Development.
This paper examines living standards in the five new independent states of Central Asia since the dissolution of the Soviet Union at the end of 1991. As well as assessing the decline in average living standards and changes in the distribution, the paper analyses the determinants of household living standards and how these determinants have changed during the transition from central planning to more market-oriented economies. Finally, the paper considers the implications of the evidence on living standards for the design of social welfare programs in the Central Asian countries. Following a review in the first section of the evidence on living standards and of the welfare system in Soviet Central Asia, section 2 summarises the national development strategies of each of the five new independent Central Asian states and provides standard measures of their economic performance. The third section reports evidence on living standards during the transition to a market economy in the Kyrgyz Republic, a country for which household survey data are relatively rich, and section 4 reviews evidence from the other Central Asian countries. Section 5 considers some implications of the evidence on living standards for the social welfare system. The final section draws some conclusions.
A nation that lacks physical objects like factories and roads suffers from an object gap. A nation that lacks the knowledge used to create value in a modern economy suffers from an idea gap. Object gaps are emphasized by mainstream economists who make use of formal models and statistical hypothesis tests. Idea gaps are emphasized by dissident economists who make use of a diverse body of evidence and avoid formal models. Economists need to use the formal models from the first approach and the diverse evidence from the second to fully appreciate the importance of idea gaps in economic development.
The aim of this paper is to contribute to the debate on the redesigning of financial systems in Central and Eastern European and developing countries by focusing attention on specific financial institutions appropriate to easing the transition and fostering the creation of markets. The paper argues that the immediate emulation of the better-known institutions of the most developed, market-based financial systems, i.e. the US and the UK, should not be taken for granted. It underlines, instead, the importance of drawing inspiration from the experiences of a variety of institutions and financial systems. Particularly relevant are those systems that have experienced forms of transition and a mix, over time, of market and state intervention.
The approach of this paper is one of institutional financial economics (Neave, 1991 and Williamson, 1986), in which structural details of financial institutions and contracts, in our case French financial institutions, are analysed. We argue that the principles on which some French financial institutions are based and aspects of their functioning are of value to reformers. We discuss the lessons that can be learnt from the Crédit National, the Commissariat Général du Plan, the CODEVI and the SOFARIS.
Recent commentators on Russia's economic reforms have almost uniformly declared them a disappointing and avoidable failure. In this book, two American scholars take a new and more balanced look at the country's attempts to build capitalism on the ruins of Soviet central planning. They show how and why the Russian reforms achieved remarkable breakthroughs in some areas but came undone in others. Unlike Eastern European countries such as Poland or the Czech Republic, to which it is often compared, Russia is a federal, ethnically diverse, industrial giant with an economy heavily oriented toward raw materials extraction. The political obstacles it faced in designing reforms were incomparably greater. Shleifer and Treisman tell how Russia's leaders, navigating in uncharted economic terrain, managed to find a path around some of these obstacles. In successful episodes, central reformers devised a strategy to win over some key opponents, while dividing and marginalizing others. Such political tactics made possible the rapid privatization of 14,000 state enterprises in 1992-1994 and the defeat of inflation in 1995. But failure to outmaneuver the new oligarchs and regional governors after 1996 undermined reformers' attempts to collect taxes and clean up the bureaucracy that has stifled business growth. Renewing a strain of analysis that runs from Machiavelli to Hirschman, the authors reach conclusions about political strategies that have important implications for other reformers. They draw on their extensive knowledge of the country and recent experience as advisors to Russian policymakers. Written in an accessible style, the book should appeal to economists, political scientists, policymakers, businesspeople, and all those interested in Russian politics or economics.
All the postsocialist countries are in deep recession. This study discusses the common features of these recessions, using the Hungarian economy as an example. The author starts by considering the following general reasons for the phenomenon : 1) the shift from a sellers' to a buyers' market, 2) the transformation of the real structure of the economy, 3) the disturbances in the coordination mechanisms, 4) the macro consequences of the hardening of financial discipline, and 5) the backwardness of the financial system. The components of macrodemand-investment, personal consumption, government consumption, and exports-are then examined one by one. The most important factor here is the dwindling propensity to invest. Finally comes a summary of the conclusions to be drawn from the analysis. There are good reasons for placing the tasks of emerging front the recession, recovery, at the top of the list of economic-“policy priorities, but without permitting an acceleration of inflation or a resumed increase in indebtedness. The study ends by analyzing the political and economic”
-psychological requirements for recovery.
One of the eventual consequences of the global debt crisis was a wave of market-oriented economic reforms. This paper discusses the state of our knowledge on the political economy of this process. Why were inefficient, and often unsustainable policies maintained for so long? Why are so many governments reforming now, after decades of adherence to policies of an opposite kind? Have the reformers internalized the correct lessons from the East Asian experience? Finally, are there any helpful rules for reformers to follow in guiding their policies through complicated political terrain?
This paper addresses whether neoclassical economics can provide the intellectual underpinning for a theory of reform. I examine whether the neoclassical model satisfies an essential condition to qualify for this role: does it give us a satisfactory explanation for the vast differences in performance between capitalist and socialist economic systems? First, I focus on the theoretical arguments that have traditionally been used to examine the comparative properties of central planning and markets. I show that developments within theory over the last 20 years have substantially changed the tone of these arguments, making their message more equivocal. Next I discuss empirical evidence, but of a particular sort. Much research shows that centrally planned economies perform less well than market economies; but few studies test whether the superiority of market economies appears within empirical models derived using the framework of basic neoclassical economics. Those studies are the relevant ones for the present exercise. The central conclusion is that economists must look outside the standard models of competition, the focus on Pareto-efficient resource allocation, and the welfare theorems to build a theory of reform.
Below I will outline the traditional Soviet economic system, developing its logic of institutions and interactions, and pointing out their natural economic consequences. This will lead me to a list of defining characteristics of that system, characteristics that are mutually dependent and supporting and hence must be changed more or less simultaneously if effective reform is to take place. One implication is that step-by-step measures are likely to fail. Instead, complete replacement of the economic system, as apparently intended by many East European reformers, seems necessary for a market-based system to begin functioning. This will be a truly monumental task and nowhere more so than in the Soviet Union.
The Evolution of Development Economics and Gustav Ranis's Role
- F Berry A
- Stewart
BERRY A. and F. STEWART. (1999). "The Evolution of Development Economics and Gustav Ranis's Role."
In Saxonhouse Gary and T. N. Srinivasan (eds.), Development Duality, and the International Economic
Regime. Ann Arbor, Michigan University Press, pp. 9-54.
Financial Sector Development in Transition Economies: A Retrospective on the First Ten Years " , paper presented at the 5th Dubrovnik conference on transition
- P Wachtel
BONIN J. and P. WACHTEL. (1999). " Financial Sector Development in Transition Economies: A Retrospective
on the First Ten Years ", paper presented at the 5th Dubrovnik conference on transition, June.
Health Sector Reform in Russia: The Heritage and the Private/Public Mix
- G Ofer
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CHERNICHOVSKY D., G. OFER, E. POTACHNIK. (1996). " Health Sector Reform in Russia: The Heritage and
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