Catching Up of Economies in Transformation

Abstract

The breakdown of the economies in eastern Europe is probably one of the most important economic events of this century. Providing an idea of the potential time path of transformation economies and the consequences of different policy strategies is a major challenge for economic theory. This is especially true since comparable events are hard to find in economic history.2 There seems to be a broad consensus among economists concerning the important elements of the transformation process. These aspects include institutional reforms, price liberalization, privatization of state-owned enterprises, the creation of financial systems and capital markets, trade liberalization, and the reorganization of labor markets.3 Another aspect is the problem of timing and sequencing of policies in the initial period of transformation.4 Given this variety of issues research about the transformation is often restricted to be partial in nature. Therefore a comprehensive as well as long run theory of transformation seems not to be at hand.