Abstract
Thirty years ago, most observers thought that the transition from a planned to a market economy would be a long process. Instead, the changes occurred very quickly, and the transition countries do not look all that different than many emerging market economies. In the first part of the chapter we discuss whether transition was truly special. In the second part, we look at the characteristics of the transition economies. Our data shows that they have similar economic structures and share many similar economic and political problems as other countries at similar income levels. We found only one area where transition stands out as different. The financial sectors of the transition economies are smaller and less well functioning than those in other countries.
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Notes
- 1.
That is not meant to imply that all transitions experiences have been successful. Some economies are stagnating and only a few exhibit strong evidence of convergence.
- 2.
- 3.
Yugoslavia was always “reformed”; some Central European economies had moderately large amounts of private sector activity and ownership and had begun to reform; even Russia introduced reforms by the 1980s. Without any political reforms, China turned to private entrepreneurship in the quest for economic growth.
- 4.
NIE has origins in economic theory that go back many years. The importance of institutions was more broadly recognized when Douglas North and Robert Fogel shared the 1993 Nobel Prize “for having renewed research in economic history by applying economic theory and quantitative methods in order to explain economic and institutional change.”
- 5.
Olofsgård et al. (2018) discuss the influence of transition on the economics literature.
- 6.
See https://www.ebrd.com/what-we-do/economic-research-and-data/data.html and Myant and Drahokoupil (2012) for a critical evaluation.
- 7.
Another early retrospective on transition, Fischer et al. (1996) focused on macroeconomic performance in the early years.
- 8.
GDP is an imperfect measure of economic wellbeing for countries undergoing structural upheaval, and it is subject to measurement error during the transition. The GDP declines overstate the fall in consumption and wellbeing. Nevertheless, income inequality, measured by Gini coefficients, increased in most countries during the 1990s.
- 9.
With the exception of Aslund’s five failures noted above.
- 10.
China looms as the elephant in the room in any discussion of transition. Although not really part of the Soviet bloc, it did adhere to communist ideas of economic organization and has clearly transitioned to a market economy. Its experiences are very different and it remains an anomaly in many respects. We will ignore the elephant in the room.
- 11.
Lower middle-income transition economies: Armenia, Georgia, Kyrgyzstan, Moldova, Tajikistan, Ukraine, Uzbekistan.
Upper middle-income transition economies: Albania, Azerbaijan, Belarus, Bosnia, and Herzegovina, Bulgaria, Croatia, Kazakhstan, North Macedonia, Romania, Russia, Serbia, Turkmenistan. High-income transition economies: Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia.
Several countries for which data were often missing are not included. In all tables, entries are blank when data are missing.
- 12.
Data downloaded from Eurostat https://ec.europa.eu/eurostat/web/products-datasets/-/tesem160.
- 13.
Havrylyshyn (2013) indicates that in the first few years of transition, the share of manufacturing in GDP dropped, the share of consumption increases, and the trade patterns shifted to the EU.
- 14.
See EBRD Structural Change Indicators https://www.ebrd.com/what-we-do/economic-research-and-data/data/forecasts-macro-data-transition-indicators.html.
- 15.
Only the most recent data are shown since these indicators are all fairy recent.
- 16.
These observations will be controversial. The benefits of foreign loans and capital flows that were apparent before the crisis are offset by the fact that foreign funding transmitted the crisis shock to the region. Moreover, the post-crisis weakness of European banks has meant that lending continues to lag.
- 17.
See Automobile Woes Cast Cloud Over Eastern Europe, Wall Street Journal, Nov. 24, 2019 https://www.wsj.com/articles/automobile-woes-cast-cloud-over-eastern-europe-11574607781?mod=searchresults&page=1&pos=2.
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Acknowledgment
Able research assistance from Aparajitha Suresh and thoughtful comments on an earlier version from Barbara Katz are much appreciated. Suggestions from the editors, Elodie Douarin and Oleh Havrylyshyn, were of an enormous help in sharpening the arguments.
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Wachtel, P. (2021). Are the Transition Economies Still in Transition?. In: Douarin, E., Havrylyshyn, O. (eds) The Palgrave Handbook of Comparative Economics. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-50888-3_16
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