Working Paper: NBER ID: w7664
Authors: Stanley Fischer; Ratna Sahay
Abstract: While output declined in virtually all transition economies in the initial years, the speed and extent of the recovery that followed has varied widely across these countries. The contrast between the more and less successful transitions, the latter largely in the former Soviet Union, raises many questions about the relative roles played by adverse initial conditions, external factors, and reform strategies. This paper summarizes the macroeconomic performance of the transition economies. We first review the initial conditions confronting these economies, the reform strategy that was proposed, and the associated controversies that arose a decade ago. We then account for the widely different outcomes, highlighting the role of exogenous factors and the macroeconomic and structural policies adopted by the countries. We find that both stabilization policies and structural reforms, particularly privatization, contributed to the growth recovery. We also conclude that the faster is the speed of reforms, the quicker is the recovery and the higher is growth.
Keywords: transition economies; macroeconomic performance; reform strategies; economic growth
JEL Codes: P2; P3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Stabilization policies (E63) | reduced inflation (E31) |
| Stabilization policies (E63) | improved economic conditions (N12) |
| Structural reforms (E69) | economic growth (O49) |
| Privatization (L33) | economic growth (O49) |
| Speed of reforms (O17) | rate of recovery (C41) |
| Speed of reforms (O17) | higher growth rates (O49) |
| Countries closest to Western Europe (O52) | better economic performance (P17) |