Democratization, Economic Liberalization, and Transformational Slump: A Cross-Sectional Analysis of Twenty-One Postcommunist Countries

Abstract

In this paper the author provides some empirical evidence to show that those old, new, or restored countries of the former Soviet-dominated bloc which embarked on the early institutional transformation of their political and economic systems in a broad and intensive way experienced more quickly the resumption of economic stability and growth and thus left behind the severe downturn of a transformational slump (that is, economic contraction, hyperinflation, and a highly unbalanced governmental budget). The early postcommunist transformation is examined in terms of a general transformational equation. The author provides a cross-sectional explanation of early differences throughout the twenty-one countries both in the institutional transformation and in the transformational slump. Two complementary LISREL (linear structural equations) models show that a successful early postcommunist transformation means (1) a quick resumption of macroeconomic balance and economic growth resting on (2) genuine democratization and economic liberalization, and (3) higher levels of inherited modernization.