Shock Therapy Versus Gradualism Reconsidered: Lessons from Transition Economies after 15 Years of Reforms
Comparative Economic Studies, Forthcoming
34 Pages Posted: 24 Jul 2006
Abstract
This paper starts by separating the transformational recession (reduction of output in most transition economies in the first half of the 1990s) from the process of economic growth (recovery from the transformational recession) in 28 transition economies (including China, Vietnam and Mongolia). It is argued that the former (the collapse of output during transition) can be best explained as adverse supply shock caused mostly by a change in relative prices after their deregulation due to distortions in industrial structure and trade patterns accumulated during the period of central planning, and by the collapse of state institutions during transition period, while the speed of liberalization, to the extent it was endogenous, i.e. determined by political economy factors, had an adverse effect on performance. In contrast, at the recovery stage the ongoing liberalization starts to affect growth positively, whereas the impact of pre-transition distortions disappears. Institutional capacity and reasonable macroeconomic policy, however, continue to be important prerequisites for successful performance.
Keywords: shock therapy, gradualism, transition economies
JEL Classification: P21, P27
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
From Plan to Market: Patterns of Transition
By Martha De Melo, Cevdet Denizer, ...
-
By Martha De Melo, Cevdet Denizer, ...
-
Growth in Transition: What We Know, What We Don't and What We Should
-
Growth in Transition: What We Know, What We Don'T, and What We Should
-
The Transition Economies after Ten Years
By Stanley Fischer and Ratna Sahay
-
The Transition Economies after Ten Years
By Stanley Fischer and Ratna Sahay
-
The Transition Economies after Ten Years
By Stanley Fischer and Ratna Sahay
-
The Soviet Economic Decline: Historical and Republican Data
By William Easterly and Stanley Fischer