A Model for Estimating Duration Phenomena: The Length of Economic Reforms

Abstract

This paper proposes a model for optimizing the duration of transition under the assumption that the government main goal is to minimize the social cost of reforms. At the beginning of transition there are two main sectors in the economy: an old technology sector - mainly the public one - where the technology is highly obsolete, the capital productivity low, and the profitability rate equally low; a modern technology sector - the private one - where the productivity is superior to the one existing in state enterprises, but still below the level of efficiency characterizing developed economies. The transition is composed of two phases: the restructuring of state enterprises, respectively the overall restructuring of the economy, such that by the end of transition the capital productivity and the ratio between capital and labour reach the values existing in developed countries. The calibration of the model in case of Syria leads to a necessary time span to complete the restructuring of state sector of 9.5 years and a total duration of transition of 20 years.