Working Paper: CEPR ID: DP1601
Authors: Willem H. Suiter; Ricardo Lago; Helene Rey
Abstract: The paper analyses the theoretical arguments and empirical evidence linking enterprise performance in transition economies to the macroeconomic environment. Macroeconomic instability is traced to the unsustainability of the fiscal-financial and monetary programmes of the state and to regulatory and other failures leading to problems with the solvency of financial institutions. The importance of macroeconomic stability for enterprise performance is documented with a simulation study and by reviewing relevant microeconomic and aggregate empirical evidence from across the world as well as from the transition economies themselves. Conclusions are reached about the speed of transition, about the synergy between macroeconomic stabilization and market development and about the creation of institutions for achieving and maintaining macroeconomic stability.
Keywords: transition economies; macroeconomic stability; enterprise performance
JEL Codes: O23; E22; E63; G11; G20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| macroeconomic stability (E60) | enterprise performance (L25) |
| macroeconomic stability (E60) | quantity and quality of investments (G31) |
| macroeconomic stability (E60) | enterprise cash flows (G39) |
| macroeconomic instability (E60) | average cash flows (G19) |
| macroeconomic instability (E60) | variability of cash flows (G32) |
| macroeconomic instability (E60) | uncertainty (D89) |
| uncertainty (D89) | enterprise performance (L25) |
| macroeconomic reform strength (E69) | real economic performance (P17) |
| macroeconomic stability (E60) | market development (D40) |
| radical reformers (B51) | better results (C52) |