Work

Transition and the output fall

Year: 1999

Type: article

Abstract: We present a model to explain why in the transition economies of Central andEastern Europe an important output fall has been associated with price liberalization. Its key ingredients are search frictions and Williamsonian relation‐specific investment, implying that new investments are made only after having found a new long‐term partner. When all firms search for new partners, output may fall because of three effects: a) disruption of previous production links, b) a fall in investment, and c) capital depreciation due to the absence of replacement investment. We show that forms of gradual liberalization like the Chinese ‘dual‐track’ price liberalization may avoid the transitory output fall. JEL classification: D21, D50, E30, E61, P41, P51.

Source: Economics of Transition

DOI: 10.1111/1468-0351.00002

Authors: Gérard Roland, Thierry Verdier

Institutions: Université Libre de Bruxelles, École Normale Supérieure - PSL

Language: English

Topic: Post-Communist Economic and Political Transition

Subfield: Political Science and International Relations

Field: Social Sciences

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: green

OpenAlex ID: W2014573704

FWCI: 136.6

Cites:

Cited by: 256

Related to: 10