The Second Transition: Eastern Europe in Perspective

  • Stefania Fabrizio
  • Daniel Leigh
  • Ashoka Mody


The countries of Eastern Europe have achieved two remarkable transitions in the short period of the last two decades: from plan to market and, then, in the run-up to and entry into the European Union, riding a wave of global trade and financial market integration. Focusing on the second transition, this paper reaches three conclusions. First, by several metrics, East European and East Asian growth performances have been about on par since the mid-1990s; both regions have far surpassed Latin American growth. Second, the mechanisms of growth in East Europe and East Asia have been very different. East Europe has relied on a distinctive – often discredited – model, embracing financial integration, with structural change to compensate for appreciating real exchange rates. In contrast, East Asia has contained further financial integration and maintained steady or depreciating real exchange rates. Third, the ongoing financial turbulence has dulled the sheen on East European performance but, thus far, has not obviously differentiated emerging market regions: rather, the hot spots in each region reflect individual country vulnerabilities. The paper, in closing, speculates on whether the East European growth model is sustainable and replicable.


European Union Real Exchange Rate Trade Openness Financial Integration Foreign Bank 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.



The authors are grateful for generous comments to Tassos Belessiotis, Ryszard Rapacki, István P. Székely, and to several participants at the workshop organized by Directorate-General for Economic and Financial Affairs (DG ECFIN) of the European Commission on “Five years of an enlarged EU – a positive-sum game,” Brussels on 13 and 14 November 2008. Susan Becker provided valuable research assistance.


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Copyright information

© Springer-Verlag Berlin Heidelberg 2010

Authors and Affiliations

  1. 1.Strategy, Policy and Review DepartmentIMFWashingtonUSA
  2. 2.Research DepartmentIMFWashingtonUSA
  3. 3.European DepartmentIMFWashingtonUSA

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