Reforms In Transition Economies Research Articles

The sequencing of reform in transition economies

In this paper, we examine the consequences of sequencing on the progress of reforms in transition economies. The paper uses panel logit models to determine whether or not progress in some reforms enhances the prospects for other reforms. We find that progress on small-scale privatization is associated with advances in several other reforms, perhaps because small-scale privatization creates lobbies for reform. Our estimations suggest that a comprehensive program of small-scale privatization is needed to stimulate large-scale privatization, trade, and banking reform in a country that has undertaken little reform. Moreover, if restructuring is to occur banking reform is necessary. We also find that relaxing the fiscal constraint stimulates large-scale privatization, restructuring, and trade reform. Finally, we find that negotiations about EU accession negotiations advance the transition but only in banking reform and competition policy. Journal of Comparative Economics 33 (4) (2005) 835–850.

Accounting Reform in Transition Economies: A Case Study of Ukraine

This paper summarizes the results of interviews conducted at accounting firms and educational institutions in Kiev and Odessa during the summer of 2004, supplemented by later correspondence via the internet. Topics discussed include the adoption and implementation of International Financial Reporting Standards (IFRS), education for accounting practitioners, recent changes in accounting education in Ukrainian universities, accounting certification and taxation. Expertise in IFRS is in short supply in Ukraine. However, demand for knowledge of IFRS is also lacking, which provides little incentive for local Ukrainian accounting firms to develop expertise in this area. As a result, the top international accounting firms, mostly the Big-4, have captured most of the market for this expertise. Nearly all of the largest companies in Ukraine retain the services of one of the Big-4 and it is primarily the large companies that can see any use for IFRS, since it is mostly the largest enterprises that are going to the international capital market in search of capital. International investors demand to see financial statements that are prepared using either IFRS or U.S. GAAP as a condition of providing investment capital and the Big-4 accounting firms are best prepared to provide guidance and expertise in this area. Much of the IFRS training of practicing accountants is done by the Big-4 accounting firms. They have developed extensive course materials over the years and have a competitive advantage in this area. However, the training they provide is mostly limited to their employees and their clients, which means that accountants who do not work for either a Big-4 firm or one of their clients do not have ready access to IFRS training. Ukrainian universities have started to incorporate IFRS into their accounting curriculums. The problem is that they cannot always find good learning materials. Some of the most prestigious universities in Ukraine still do not have a course devoted just to IFRS. IFRS is inserted into their course on foreign accounting. Ukrainian financial statements that are certified by accountants who possess only a Ukrainian certification do not have much credibility in international capital markets. One reason for this lack of credibility is the perception that the average Ukrainian accountant does not meet international standards when it comes to knowledge of IFRS and International Standards on Auditing (ISA). Another reason is because the accounting certification system is viewed as corrupt. There are rumors that Ukrainian accounting certification can be bought. This problem is being overcome in two different ways. Several internationally recognized accounting certification exams are now being offered in Ukraine. Any Ukrainian accountant who can pass these exams earns instant credibility. The problem is that these exams are given only in English, which greatly limits the number of Ukrainian accountants who can take and pass the exams. This language barrier is being overcome by a group of accounting associations in several former Soviet republics, which began offering a high quality certification program in the Russian language. This certification started with a pilot program in Central Asia and has recently spread to Ukraine, Russia and Moldova. As this program spreads, the credibility of Ukrainian accountants who can pass these certification exams will be greatly enhanced.

Transformation of Enterprises in Russia1

There have been dramatic changes in the world since 1990. Among all the changes, the transition from a command economy to a market economy has been one of the most important peace events of the 1990s. The developments after the fall of the Berlin Wall in 1989 and the dissolution of the Soviet Union in 1991 sharply accelerated this process of transition. The three important aspects of economic reform in transition economies (i.e., former socialist countries including Russia) are: (a) liberalisation, (b) privatisation and (c) globalisation. Privatisation remains a key step in the policies of transition economies to form a viable market-oriented economy. There are various methods of privatisation such as restitution, direct sales, equity offerings, management-employee buyouts and mass/voucher privatisation. This process of reform and privatisation has brought about a certain transformation of enterprises in Russia. Therefore, the coverage of our study is Russia, and the field study on informal sector was carried out in Moscow, its capital city. The study reported here examines the impact of economic reform, particularly privatisation, on enterprises in Russia, and draws lessons for India from the experience of Russia.

The Success and Failure of Reforms in Transition Economies

This paper argues that an important reason why Russia's performance and China's performance under capitalism have differed dramatically is that different arrangements governing the determination of prices and work practices evolved during the transition process. In Russia, the arrangement, which conferred monopoly rights to industry groups leftover from socialism, prevented the adoption of better technology. In China, the arrangement that evolved contained no such monopoly elements. The key factor in determining which arrangement evolved was the strength of the central government. We put forth a model that implements these ideas and provide evidence in support of this theory.

Plans, timetables, and delays: progress with railway reform in transition economies

This paper describes the extent of railway reform in a selection of representative transition economies and discusses some of the factors that will influence the success of the reforms in the future. Railways in the European Union’s area of influence, such as those in Poland and Romania, which are financially weak and losing market share to road transport, have advanced on the railway reform path more than those in Kazakhstan, Russia and Ukraine. The latter are financially strong and enjoy a dominant share of the freight market. Railway reform agendas are ambitious on paper but suffer from implementation delays. The combination of favourable financial conditions, weak inter-modal competition, and politicised decision-making slows down reform. The success of railway reform depends not only on building institutional capacity to make the railways market-oriented and adequately regulated, but also on promoting wider reforms in the economy, such as enterprise restructuring and financial sector development.

Challenges for water sector reform in transition economies

This paper discusses the practical problems of implementing water policy and pricing reforms in transition economies by looking at the case of Odessa, Ukraine. Chief among the policy advice for the water and sanitation (W&S) sector in less developed countries is greater cost-sharing by customers through increased service prices, with the goals of encouraging more efficient water use by users, promoting a greater perceived stake among customers in the health of their W&S systems and enabling service providers to maintain and expand their networks as needed. While appropriate for much of the developing world, this policy advice has had limited applicability for many communities in transition economies. The complex existing water supply infrastructure in much of Central and Eastern Europe, along with residents' low effective demand for high-quality service, create an environment in which typical price reform strategies will initially be a minor component in sector reform efforts. We use the case of Odessa, Ukraine, to discuss the reasons why traditional advice on water pricing has been of limited use in the region.

Tax Reform in Transition Economies: Experiences and Lessons

International Studies Program, Working paper 97-6, Prepared for the International Seminar in Public Economics, Tokyo, August 1997, SSRN-id470841

Budget System Reform in Transitional Economies The Case of the Former Yugoslav Republics

For the republics of the former Socialist Federal Republic of Yugoslavia (SFRY) as for many other transition economies, an important step in introducing a more market-oriented system was the restructuring of their budget systems. This paper reviews and evaluates the process of budget system reform during the transition period extending from the time they emerged from the collapse of the SFRY in 1989 until the end of 2002. For at least a decade of this period, the Fiscal Affairs Department of the IMF has been providing technical assistance (TA) to these countries to facilitate such reforms. Based on the material generated by this effort, the authors offer a review of the progress made and an assessment of the reform elements still to be completed. Given that the former Yugoslav republics all commenced the reform process with the same institutions, this paper offers a unique opportunity to analyze the critical elements in successful budget system reform. An attempt is made to explain the varying degrees of success experienced by different countries, and a reform agenda is suggested to guide future TA.

Budget System Reform in Transitional Economies: The Case of the Former Yugoslav Republics

For the republics of the former Socialist Federal Republic of Yugoslavia (SFRY) as for many other transition economies, an important step in introducing a more market-oriented system was the restructuring of their budget systems. This paper reviews and evaluates the process of budget system reform during the transition period extending from the time they emerged from the collapse of the SFRY in 1989 until the end of 2002. For at least a decade of this period, the Fiscal Affairs Department of the IMF has been providing technical assistance (TA) to these countries to facilitate such reforms. Based on the material generated by this effort, the authors offer a review of the progress made and an assessment of the reform elements still to be completed. Given that the former Yugoslav republics all commenced the reform process with the same institutions, this paper offers a unique opportunity to analyze the critical elements in successful budget system reform. An attempt is made to explain the varying degrees of success experienced by different countries, and a reform agenda is suggested to guide future TA.

Real Exchange Rates in Transition Economies

Paper attempts to develop a model suitable for an analysis of the real exchange rate determination in transition economies. The main distinction from other approaches to the real exchange rate determination is an introduction of the pre-transition period which enables one to separately examine the role of adverse initial conditions and labor market reallocation between the tradable and non-tradable good sectors believed to characterize the extent of structural reforms in transition economies. Empirical findings seem to confirm that transition - when looking only at the real exchange rate behavior - is over once the progress in structural reforms does not affect the real exchange rate determination relative to other factors. Along the lines of research on growth prospects in transition economies, the effect of structural changes on the real exchange rate in more advanced transition economies has on average diminished in the fifth year of the transition process. The results for less advanced economies are in line with other studies on transition.

Efficient Infrastructure Supply for Economic Development in Transition Countries: The Case of Ukraine

Infrastructure restructuring is one of the major elements of structural reforms in transition economies because of its expected large economic and social impact. This article aims to assess the role of infrastructure policy in economic development in transition countries in general and Ukraine in particular. We test the relationship between infrastructure policy and economic growth, though this test is carried out at a very aggregate level due to data problems. According to our estimations the government can make an indirect contribution to economic development by enhancing competition and efficiency within the infrastructure industries. The article also develops a framework to analyse and compare infrastructure policies across transition countries, and provides a detailed survey of infrastructure policies in Ukraine. We conclude that the major element of reforms should be tariff reform, carried out concurrently with commercialisation and deregulation of the sector.

The World Bank, Privatization and Enterprise Reform in Transition Economies: A Retrospective Analysis

This conceptual account details the approach to privatization, and enterprise reform of three major countries in transition: Poland, Russia, and the Czech Republic / Slovakia. It discusses the states of mind that prevailed in each country, the perceptions of the Bank at various places and moments, the initial conditions faced by reformers, and those who assisted them, and, the policy frameworks that evolved. The collapse of communism, led to believe that in entering a period of extraordinary economic policy, one could privatize conglomerates without breaking them up, and assume that competition would prevent the abuse of market power, disregarding the effects of structural barriers to imports from exchange rate issues; assign restructuring, and corporate governance responsibilities to second-phase private owners, neglecting existing weak institutional mechanisms that would prevent this secondary trading to succeed; and, depend on new private shareholders to lobby for further reform liberalization, overlooking an evident absence of institutional framework. Concluding observations indicate that earlier, and more attention should have been paid to prudential regulations in capital, and financial markets, including institutional development matters. Specifically, the Bank might have done better to further advocate the approach used by Estonia (despite being a case not easily replicated), i.e., limiting the exchange of vouchers to minority stakes if a controlling majority had already been sold to a core investor. However, while privatization could have been better managed, evidence shows it has proven its worth, and should not be accountable for all the problems of transition.

Budget System Reform in Transitional Economies: The Experience of Russia

This paper stresses the role of budget system reform in economies in transition as an essential basis for the implementation of effective fiscal policies. However, introducing such structural reforms in often unstable economic environments has not proved easy. Using Russia as a case study, the magnitude of the problems faced is documented, and the strategy of reform eventually adopted is critically reviewed. In conclusion, some lessons are drawn for other transitional countries undertaking similar reforms, and the future agenda for completing these reforms in Russia is indicated.

Budget System Reform in Transitional Economies: The Experience of Russia

This paper stresses the role of budget system reform in economies in transition as an essential basis for the implementation of effective fiscal policies. However, introducing such structural reforms in often unstable economic environments has not proved easy. Using Russia as a case study, the magnitude of the problems faced is documented, and the strategy of reform eventually adopted is critically reviewed. In conclusion, some lessons are drawn for other transitional countries undertaking similar reforms, and the future agenda for completing these reforms in Russia is indicated.

Creative Norm Destruction: The Evolution of Nonlegal Rules in Japanese Corporate Governance

This paper analyzes the origins, persistence, and current evolution of a series of non-legal rules (or “norms”) that have played an important role in Japanese corporate governance. The four central features of the governance environment examined here include: 1) the main bank system, in which banks voluntarily restructure loans to some distressed borrowers, 2) a social distaste for hostile takeovers, 3) implicit promises of employment stability, and 4) belief systems about the proper role and structure of the board of directors. I show that, despite virtually ubiquitous claims to the contrary, these norms do not enjoy a long history of practice in Japan, but rather emerged only in the immediate postwar period. I hypothesize that they emerged for two reasons: First, they served as a low-cost substitute for a troubled formal institutional environment beset by the “transplant effect” that imperils legal reform in transition economies today. Second, they provided private benefits to the small number of interest groups that emerged intact from World War II. The flow of private benefits to norm adherents explains the persistence of the norms despite clear evidence of their inefficiency over the past decade. I demonstrate that current models of norm reform, which emphasize the role of exogenous shocks, the workings of norm entrepreneurs, and increased information, explain why the norms of Japanese corporate governance are currently evolving. Finally, extrapolating from Japan’s experience, I suggest how norm analysis can contribute to the two most pressing questions in comparative corporate governance today: whether law matters to corporate governance, and whether diverse systems of corporate governance are converging toward the AngloAmerican model. As to both questions, I suggest that closer attention to norms reveals shortcomings in the existing literature. * Fuyo Professor of Law and Director, Center for Japanese Legal Studies, Columbia Law School. This paper was prepared for a symposium on Norms and Corporate Law at the University of Pennsylvania School of Law, December 8-9, 2000. The paper grew out of a series of interviews I held in Tokyo with approximately 25 government officials, lawyers, investment bankers, and corporate managers in June of 2000. Since several interviewees requested anonymity, I have cited to my interview transcripts without disclosing the identity of the interviewee. Interested (or skeptical) readers may review redacted transcripts upon request. I owe my interviewees a large debt of gratitude. Prior drafts were improved by comments from Robert Ellickson, Hugh Patrick, Mark West, my symposium commentator Reinier Kraakman, and symposium or workshop participants at Columbia, Vanderbilt, and the University of Pennsylvania Law Schools. I also benefited from discussions with Melvin Eisenberg.

Fiscal Policy and Structural Reforms in Transition Economies: An Empirical Analysis

This paper provides an empirical examination of the relationship between fiscal balance and structural reforms using panel data from 25 transition economies. The results indicate that privatization and restructuring, via unemployment, affect the fiscal balance negatively. This finding provides support for ideas in theoretical transition economics that maintain that fiscal pressures are most severe in fast-reforming countries. In contrast, price liberalization has a robust positive impact on fiscal performance. In addition, the results differ somewhat over different countries and transition time.

Creative Norm Destruction: The Evolution of Nonlegal Rules in Japanese Corporate Governance

This paper analyzes the origins, persistence, and current evolution of a series of non-legal rules (or norms) that have played an important role in Japanese corporate governance. The four central features of the governance environment examined here include: 1) the main bank system, in which banks voluntarily restructure loans to some distressed borrowers, 2) a social distaste for hostile takeovers, 3) implicit promises of employment stability, and 4) belief systems about the proper role and structure of the board of directors. I show that, despite virtually ubiquitous claims to the contrary, these norms do not enjoy a long history of practice in Japan, but rather emerged only in the immediate postwar period. I hypothesize that they emerged for two reasons: First, they served as a low-cost substitute for a troubled formal institutional environment beset by the transplant effect that imperils legal reform in transition economies today. Second, they provided private benefits to the small number of interest groups that emerged intact from World War II. The flow of private benefits to norm adherents explains the persistence of the norms despite clear evidence of their inefficiency over the past decade. I demonstrate that current models of norm reform, which emphasize the role of exogenous shocks, the workings of norm entrepreneurs, and increased information, explain why the norms of Japanese corporate governance are currently evolving. Finally, extrapolating from Japan's experience, I suggest how norm analysis can contribute to the two most pressing questions in comparative corporate governance today: whether law matters to corporate governance, and whether diverse systems of corporate governance are converging toward the Anglo-American model. As to both questions, I suggest that closer attention to norms reveals shortcomings in the existing literature.

Fiscal policy and structural reforms in transition economies

This paper provides an empirical examination of the relationship between fiscal balance and structural reforms using panel data from 25 transition economies. The results indicate that privatization and restructuring, via unemployment, affect the fiscal balance negatively. This finding provides support for ideas in theoretical transition economics that maintain that fiscal pressures are most severe in fast‐reforming countries. In contrast, price liberalization has a robust positive impact on fiscal performance. In addition, the results differ somewhat over different countries and transition time.

Soft budget constraint theories: From centralization to the market

This paper surveys the theoretical literature on the effect of soft budget constraints on economies in transition from centralization to capitalism; it also reviews our understanding of soft budget constraints in general. It focuses on the conception of the soft budget constraint syndrome as a commitment problem. We show that the two features of soft budget constraints in centralized economies –ex post renegotiation of firms' financial plans and a close administrative relationship between firms and the centre – are intrinsically related. We examine a series of theories (based on the commitment‐problem approach) that explain shortage, lack of innovation in centralized economies, devolution, and banking reform in transition economies. Moreover, we argue that soft budget constraints also have an influence on major issues in economics, such as the determination of the boundaries and capital structure of a firm. Finally, we show that soft budget constraints theory sheds light on financial crises and economic growth.

Institutional Reform in Transition Economies: How Far Have they Come

This paper examines how institutional conditions in transition economies compare with those in the rest of the world using various indicators of governance. The focus is on the countries in Central and Eastern Europe and the former Soviet Union but, when possible, transition countries, in Asia and Africa are also considered. The main findings are that transition economies, as a group, are no longer distinguishable from other economies, but at the same time, there are large differences in institutional performance within the group of transition economies. A formal cluster analysis is conducted in order to map transition economies into homogeneous groupings of countries. The results of this analysis highlight that transition economies are found at all clusters (from best to worst institutional performers) and also that a group of five countries, all of which are EU accession countries, appear to have “graduated”: when taking into account their level of income, their institutional conditions are no longer distinguishable from those in the most advanced industrialized countries.