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Explore the complexities of transition economics from poor starting points to sustainable growth, with a focus on therapeutic strategies for economic renewal. Delve into comparative economics, evolution, institutional change, and critical transition puzzles.
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Economics of Transition Barry W. Ickes Spring 2007
What is Transition • Transition is development economics from different initial conditions • Developing economies start poor • Transition economies were poor countries that adopted strange institutions to develop • The key question of transition economics is how to get back to the normal road of economic development • Without having to double back
Comparative Economics vs Economics of Transition • The study of comparative economic systems was much like economic pathology. • We studied how economic systems that were "sick" operated. • What happens to the economic system when its nervous system is seriously distorted? • Economics of Transition is then the study of therapy: ∙ • How does an economic system suffering from such pathology recover? • It is the study of restoring the health of an economic system.
Evolution and Transition • Compelling issue of transition economics is that simply removing distortions and impediments to markets does not accomplish the task of economic renewal. • Institutional change is complex and painful • Development is the process of turning a less complex organism into a more complex one • Transition is very different. • It can be likened to changing the organism from one type to another • Transition economies differ in terms of how long they spent on the “wrong” path
The main ingredients of the transition process • Liberalization • Macroeconomic stabilization • Restructuring and privatization • Legal and institutional reforms • But what order and what to emphasize first?
Some Transition Puzzles • The Output Fall • The Uzbek Growth Puzzle • Returns to human capital • Re-demonetization • Value destroying activities are retained • Difficulty of eliminating soft-budget constraints • Geography matters • The Great Divide • Privatization and efficiency
Transition Questions • Do differences in transition outcomes reflect primarily reform strategies or initial conditions? • Is it necessary to begin with liberalization and stabilization? • How crucial is privatization to marketization? • Does transition require that a gulf emerge between winners and losers? • Is there only one path that the transition can take? Or are there alternatives to the Washington consensus? • How long will the transition last? • When is transition over?
