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Reform Reversal in Former Transition Economies (FTEs) of the European Union: Areas, Circumstances and Motivations

Author

Listed:
  • Székely, István P.

    (European Commission)

  • Ward-Warmedinger, Melanie E.

    (European Central Bank)

Abstract
The rapid journey from central planning to EU (euro area) membership stress-tested the social learning processes of the Former Transition Economies (FTEs). The desire for a higher standard of living, to be anchored to the West, and to enter the EU, spurred major reform waves and led to the very rapid introduction of best-practice institutions. Although social learning accompanied this process, in many FTEs it was not fast enough to keep pace with the rapid reforms, leaving best-practice institutions with social norms that were not sufficiently strong to maintain them. As a result, wide-spread reform reversals emerged in the region. Such reform reversals appeared as formal reversals, which changed legislation (or formal rules), and behavioral reversals, which eroded the quality of an institution by materially changing the way it worked. It was frequently the interaction of reversals in different sectors that created a full-blown reform reversal episode, with the financial sector particularly prone to behavioral reversals, both in public and private institutions. External anchors such as the Washington institutions played a dominant role in shaping the transition process. Along with the EU accession process, the EU acted as a strong anchor that could prevent or reverse formal reform reversals in areas covered by EU law, but could play a much weaker role in the case of behavioral reversals. Our analysis naturally leads to the conclusion that the ultimate solution to prevent reform reversals is to accelerate social learning processes that strengthen the national ownership of reforms. It is also important to focus on the quality and internal coherence of reforms and newly created institutions.

Suggested Citation

  • Székely, István P. & Ward-Warmedinger, Melanie E., 2018. "Reform Reversal in Former Transition Economies (FTEs) of the European Union: Areas, Circumstances and Motivations," IZA Policy Papers 142, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izapps:pp142
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    References listed on IDEAS

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    1. Vratislav Izák, 2014. "Private and Public Debt," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2014(1), pages 4-21.
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    Cited by:

    1. Jorge Durán, 2019. "FDI and Investment Uncertainty in the Baltics," European Economy - Economic Briefs 043, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    2. Henrik Huitfeldt, 2020. "Towards Better Adequacy and Sustainability A Review of Pension Systems and Pension Reforms in Eastern Partnership Countries," European Economy - Discussion Papers 131, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. István P. Székely & Melanie Ward-Warmedinger, 2018. "Reform Reversals: Areas, Circumstances and Motivations," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 60(4), pages 559-582, December.
    4. István P. Székely, 2018. "Sustainable and equitable convergence and integration in Central, Eastern and Southeastern Europe," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q3-18, pages 24-33.

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    More about this item

    Keywords

    transition economies; European Union; institution building; social norms; reform reversals;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • G2 - Financial Economics - - Financial Institutions and Services
    • J48 - Labor and Demographic Economics - - Particular Labor Markets - - - Particular Labor Markets; Public Policy
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

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