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Shock Therapy Versus Gradualism Reconsidered: Lessons From Transition Economies After 15 Years Of Reforms

Author

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  • Vladimir Popov

    (NES)

Abstract
This paper starts by separating the transformational recession (reduction of output in most transition economies in the first half of the 1990s) from the process of economic growth (recovery from the transformational recession) in 28 transition economies (including China,Vietnam and Mongolia). It is argued that the former (the collapse of output during transition) can be best explained as adverse supply shock caused mostly by a change in relative prices after their deregulation due to distortions in industrial structure and trade patterns accumulated during the period of central planning, and by the collapse of state institutions during transition period, while the speed of liberalization, to the extent it was endogenous, i.e. determined by political economy factors, had an adverse effect on performance. In contrast, at the recovery stage the ongoing liberalization starts to affect growth positively, whereas the impact of pre-transition distortions disappears. Institutional capacity and reasonable macroeconomic policy, however, continue to be important prerequisites for successful performance.

Suggested Citation

  • Vladimir Popov, 2006. "Shock Therapy Versus Gradualism Reconsidered: Lessons From Transition Economies After 15 Years Of Reforms," Working Papers w0068, New Economic School (NES).
    • Handle: RePEc:abo:neswpt:w0068
    as

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    File URL: https://www.nes.ru/files/Preprints-resh/WP68Popov.pdf
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    Cited by:

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    2. Polterovich, Victor & Popov, Vladimir, 2007. "Democratization, Quality of Institutions and Economic Growth," MPRA Paper 19152, University Library of Munich, Germany.
    3. Popov, Vladimir, 2010. "Is Chinese variety of capitalism really unique?," MPRA Paper 28109, University Library of Munich, Germany.
    4. Ichiro Iwasaki & Taku Suzuki, 2016. "Radicalism Versus Gradualism: An Analytical Survey Of The Transition Strategy Debate," Journal of Economic Surveys, Wiley Blackwell, vol. 30(4), pages 807-834, September.
    5. Bartak Jakub & Jabłoński Łukasz, 2016. "Human Capital Versus Income Variations: Are They Linked in OECD Countries?," Journal of Management and Business Administration. Central Europe, Sciendo, vol. 24(2), pages 56-73, June.
    6. Marcello Signorelli & Enrico Marelli, 2007. "Institutional change, regional features and aggregate performance in eight EU’s transition countries," Quaderni del Dipartimento di Economia, Finanza e Statistica 37/2007, Università di Perugia, Dipartimento Economia.
    7. Gianluca Grimalda & David Barlow & Elena Meschi, 2010. "Varieties of capitalisms and varieties of performances: accounting for inequality in post-Soviet Union transition economies," International Review of Applied Economics, Taylor & Francis Journals, vol. 24(3), pages 379-403.
    8. Challet, Damien & Solomon, Sorin & Yaari, Gur, 2009. "The universal shape of economic recession and recovery after a shock," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-24.
    9. Alexei Izyumov & Trista Claxon, 2009. "Models of Capitalism and Income Distribution in Transition Economies: A Comparative Perspective," Journal of Economic Issues, Taylor & Francis Journals, vol. 43(3), pages 733-758.
    10. Polterovich, Victor, 2008. "Современное Состояние Теории Экономических Реформ [Modern Condition of the Theory of Economic Reforms]," MPRA Paper 22032, University Library of Munich, Germany.
    11. Polterovich, Victor & Popov, Vladimir, 2007. "Демократизация И Экономический Рост [Democratization and Economic Growth]," MPRA Paper 23012, University Library of Munich, Germany.
    12. Grzegorz W. Kolodko, 2009. "A Two-thirds Rate of Success: Polish Transformation and Economic Development, 1989-2008," WIDER Working Paper Series RP2009-14, World Institute for Development Economic Research (UNU-WIDER).
    13. Csaba, László, 2009. "A szovjetológiától az új intézményi közgazdaságtanig - töprengések két évtized távlatából [From Sovietology to the new institutional economics - meditations from a distance of two decades]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 749-768.

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