Transcript Hidayet`s Presentation THE FIRST DECADE IN TRANSITION

INTRODUCTION
•
Output fell sharply
• Private enterprises overtook the state
sector
• Exports rose-Moving toward industrial
countries
• Poverty increased sharply
• Average poverty rates (1990-1998)
Explaining variation in output performance
 Initial conditions
 External economic shocks
 Policies
 What initial conditions matter
 Conclusion

Output Fell Sharply

Onset of the transition there was a sharp
initial fall

On the next page the figure shows us
this initial fall

Then fast recovery and sustainable growth
followed

Another page shows us this situation
The CIS had an average of 6.5 years of
declining output
 The CIS had recovered only 63 percent of its
starting GDP values
 Poland had the shortest and mildest
recession
 Armenia, Georgia and Moldova saw the
steepest declines
 Industry and agriculture declined by about 9
percent of GDP in CIS

Industry Shrank and Services
Grew
CSB and CIS shifted to market economy
 These two groups had economic
liberalization
 Industry shrank and services grew
 The table show us this situation

Private Enterprises Overtook the
State Sector
After shifted to market economy, private
sector grew
 Show as:

Export Rose-Moving Toward
Industrial Countries
The most important things in this part
are;
 With new technology to modernize
industries and extract natural resources
 Between 1996-1999 more than $ 70
billion indirect investment came to CSB
countries
 Secondly CIS foreign direct investment
was confined to the energy rich
countries

Poverty Increased Sharply and
Average Poverty Rates
In the transition period was still one of
extreme hardship for many people
 Except Easttern Europe and Central
Asia poverty rates decreased in 1998
 Not only fall in output but also inequality
in the distribution of income

Explaining Variations in Output
Performance
Explanations of economic outcomes can
listed as;
1) the characterstics of countries at the
beginning of transition
2) the shocks resulting from the
breakdown of the central planing system
3) the dissolution of the Soviet Union
4) wars and civil strife
5) the policies to make easy the transition

Did Initial Conditions Affect
Performance?
Some conditions may have affected
economic performance. These
conditions are listed as;
1) geography
2) years spent under central planing
3) the nature of economic development
under socialism

Melo, Denizer and Gelb used some
indicators
 Influence of initial conditions on the
economic performance
 These indicators are;
*structure
*distortions
*instutions


These indicators include some variables to
each other:
1) Structure
* share of industry in GDP
* degree of urbanization
* trade dependence
* natural resource endowment
* income
2) Distortions
* repressed inflation
* black market exchange rates
* terms of trade loss for the CIS
* reform history
* pretransition growth rate
3) Instutions
* market memory
* location
* new states
External Economic Shocks
Delayed Recory

There is severe shocks. These shocks
are listed as;
* Financial crises of the 1990s (Mexico,
East Asia and Russia)
* War and civil strife (Armenia,
Azerbaijan and Tajikistan 1992-94,
Georgia and Moldova in 1992, Croatia
and FYR Macedonia in 1991-94)
Policies – Do They Matter?
There should be reforms
 These reforms ought to be broad
consensus
* macroeconomic stabilization
* price and trade liberalization
* imposition of hard budget constraints
on banks and enterprises

* enabling environment for private sector
development
* reform of the tax system
* legal and judicial reform
* reform of the public sector instutions
The extent of economic policy reform could
be measured by liberalization index
 measures reforms for allocating resources
 includes reforms to maintain the efficient
functioining of markets

What Initial Conditions Matter
and When Do They Matter?
Initial conditions are more important
factors
 Initial conditions explains economic
growth during 1990-1994 with 51
percent
 During the decade, initial conditions
define average growth 41 percent

Conclusion
Initial conditions can not be changed
 However policies can be advanced
 Effective and modern public economy
should composed
 Instutional arrangements should be
done

Compliance costs should be decreased
 Local and small businesses complain to
defraudation
 CSB countries which had good initial
conditions and with radical decisions
were successful

CIS countries could not achieve the
evolution of democracy
 Also these countries were unsuccessful
to make reforms
 They are not close to the Western
markets

Thanks for your listening