the first decade in transition

8/8/2019 The First Decade in Transition

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How did transition economies perform?


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INTRODUCTION Output fell sharply

Private enterprises overtook the statesector

Exports rose-Moving toward industrialcountries

Poverty increased sharply

Average poverty rates (1990-1998)


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Explaining variation in output performance

Initial conditions

External economic shocks

Policies

What initial conditions matter

Conclusion


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Output Fell Sharply Onset of the transition there was a sharp

initial fall

On the next page the figure shows usthis initial fall


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Then fast recovery and sustainable growthfollowed

Another page shows us this situation


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The CIS had an average of 6.5 years ofdeclining output

The CIS had recovered only 63 percent of itsstarting GDP values

Poland had the shortest and mildest

recession Armenia, Georgia and Moldova saw the

steepest declines

Industry and agriculture declined by about 9percent of GDP in CIS


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Industry Shrank and ServicesGrew CSB and CIS shifted to market economy

These two groups had economicliberalization

Industry shrank and services grew

The table show us this situation


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Private Enterprises Overtook theState Sector After shifted to market economy, private

sector grew

Show as:


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Export Rose-Moving TowardIndustrial Countries The most important things in this part

are;

With new technology to modernize

industries and extract natural resources Between 1996-1999 more than $ 70

billion indirect investment came to CSBcountries

Secondly CIS foreign direct investmentwas confined to the energy richcountries


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Poverty Increased Sharply andAverage Poverty Rates In the transition period was still one of

extreme hardship for many people

Except Easttern Europe and Central

Asia poverty rates decreased in 1998

Not only fall in output but also inequalityin the distribution of income


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Explaining Variations in OutputPerformance Explanations of economic outcomes can

listed as;

1) the characterstics of countries at the

beginning of transition2) the shocks resulting from the

breakdown of the central planing system

3) the dissolution of the Soviet Union

4) wars and civil strife

5) the policies to make easy the transition


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Did Initial Conditions AffectPerformance? Some conditions may have affected

economic performance. Theseconditions are listed as;

1) geography

2) years spent under central planing

3) the nature of economic development

under socialism


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Melo, Denizer and Gelb used someindicators

Influence of initial conditions on theeconomic performance

These indicators are;

*structure*distortions

*instutions


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These indicators include some variables toeach other:

1) Structure

* share of industry in GDP

* degree of urbanization* trade dependence

* natural resource endowment

* income


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2) Distortions

* repressed inflation

* black market exchange rates

* terms of trade loss for the CIS* reform history

* pretransition growth rate


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3) Instutions

* market memory

* location* new states


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External Economic ShocksDelayed Recory There is severe shocks. These shocks

are listed as;

* Financial crises of the 1990s (Mexico,

East Asia and Russia)

* War and civil strife (Armenia,Azerbaijan and Tajikistan 1992-94,

Georgia and Moldova in 1992, Croatiaand FYR Macedonia in 1991-94)


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Policies Do They Matter? There should be reforms

These reforms ought to be broadconsensus

* macroeconomic stabilization

* price and trade liberalization

* imposition of hard budget constraints

on banks and enterprises


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* enabling environment for private sectordevelopment

* reform of the tax system

* legal and judicial reform

* reform of the public sector instutions


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The extent of economic policy reform couldbe measured by liberalization index

measures reforms for allocating resources

includes reforms to maintain the efficientfunctioining of markets


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What Initial Conditions Matterand When Do They Matter? Initial conditions are more important

factors

Initial conditions explains economic

growth during 1990-1994 with 51percent

During the decade, initial conditions

define average growth 41 percent


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Conclusion Initial conditions can not be changed

However policies can be advanced

Effective and modern public economyshould composed

Instutional arrangements should bedone


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Compliance costs should be decreased Local and small businesses complain to

defraudation

CSB countries which had good initialconditions and with radical decisionswere successful


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CIS countries could not achieve theevolution of democracy

Also these countries were unsuccessful

to make reforms They are not close to the Western

markets


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Thanks for your listening

the first decade in transition

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