Transcript Evolution by Region - Pennsylvania State University

Economics of Transition
Barry W. Ickes
Spring 2007
What is Transition
• Transition is development economics from
different initial conditions
– Developing economies start poor
– Transition economies were poor countries that
adopted strange institutions to develop
– The key question of transition economics is how to
get back to the normal road of economic
development
• Without having to double back
Founding Fathers
Magnitogorsk
Chelyabinsk Tractor Factory
Norilsk
Gdansk Shipyards
Antonov
Berlin Wall
Transition
Transition Figures
Comparative Economics vs Economics of Transition
• The study of comparative economic systems was much
like economic pathology.
– We studied how economic systems that were "sick" operated.
– What happens to the economic system when its nervous
system is seriously distorted?
• Economics of Transition is then the study of therapy: ∙
– How does an economic system suffering from such
pathology recover?
– It is the study of restoring the health of an economic system.
Evolution and Transition
• Compelling issue of transition economics is that simply
removing distortions and impediments to markets does
not accomplish the task of economic renewal.
– Institutional change is complex and painful
• Development is the process of turning a less complex
organism into a more complex one
• Transition is very different.
– It can be likened to changing the organism from one type to
another
• Transition economies differ in terms of how long they
spent on the “wrong” path
Human Evolution
neanderthal
homo sapien
homo habilis
Economic Evolution
capitalism
socialism
pre-industrial
economy
The main ingredients of the transition process
•
•
•
•
•
Liberalization
Macroeconomic stabilization
Restructuring and privatization
Legal and institutional reforms
But what order and what to emphasize first?
Some Transition Puzzles
• The Output Fall
– The Uzbek Growth Puzzle
• Returns to human capital
• Re-demonetization
• Value destroying activities are retained
– Difficulty of eliminating soft-budget constraints
• Geography matters
– The Great Divide
• Privatization and efficiency
Transition Questions
1.
Do differences in transition outcomes reflect
primarily reform strategies or initial conditions?
Is it necessary to begin with liberalization and
stabilization?
How crucial is privatization to marketization?
Does transition require that a gulf emerge
between winners and losers?
Is there only one path that the transition can take?
Or are there alternatives to the Washington
consensus?
How long will the transition last?
2.
3.
4.
5.
6.
•
When is transition over?
Inflation by Region
GDP in CEE’s
Figure 1: Official GDP Growth in Central and Eastern Europe
140.00
130.00
120.00
1989=100
110.00
100.00
90.00
80.00
70.00
60.00
50.00
1989
1990
1991
1992
1993
1994
1995
1996
1997
ALBANIA
BULGARIA
CROATIA
CZECH REPUBLIC
POLAND
ROMANIA
SLOVAK REPUBLIC
SLOVENIA
1998
1999
HUNGARY
2000
GDP in FSU
Depth of Transition and Distance from Brussels
Current GDP and Distance to Brussels
Evolution by Region
China and India in the Long View
3500
3000
2500
2000
1500
1000
500
0
1700
1820
1870
1913
India
1950
China
1973
1998
Chinese Poverty