Working Paper: CEPR ID: DP1372
Authors: Micael Castanheira; Gerard Roland
Abstract: This paper adresses the issue of the optimal speed of economy-wide restructuring from a state-owned to a privately-owned economy. The analysis is led from a general equilibrium perspective, focusing on the role of endogenously generated capital accumulation. Sensitivity of the optimal speed of transition is performed with respect to preferences and technology. It is found in particular that adverse productivity shocks to the state sector, occurring early on in transition tend to create macroeconomic contraction and slow down investment and the speed of transition. Such shocks tend to accelerate transition if they occur at a later stage, however. This may shed light on the effect of adverse productivity shocks on output contraction in the early phase of transition in Central and Eastern Europe.
Keywords: Eastern Europe; Speed of Transition; Transitional Dynamics; Restructuring; Investment
JEL Codes: E21; E61; P41; P51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| early adverse productivity shocks (O49) | macroeconomic contraction (E65) |
| macroeconomic contraction (E65) | speed of transition (C69) |
| later adverse productivity shocks (O49) | capital accumulation and restructuring (E22) |
| early adverse productivity shocks (O49) | speed of transition (C69) |
| later adverse productivity shocks (O49) | avoidance of inefficient unemployment (J64) |