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This Paper explores interactions between growth, economic liberalization and democratization during transition. The results can be summarized as follows: (1) Liberalization has a strong positive effect on growth during transition. This holds also when controlling for possible endogeneity of liberalization in growth. (2) Democracy encourages liberalization - countries which introduced greater democracy subsequently progress further in economic liberalization too. (3) Because of its reinforcing effect on liberalization, democracy has a positive overall impact on growth. Nevertheless, the marginal effect of democracy (after controlling for progress in economic liberalization) is negative during early transition. (4) The progress in democratization in turn depends on past economic performance in a surprising manner - the relationship between past growth and subsequent democracy appears negative. (5) Economic performance is an important determinant of electoral outcomes and, in particular, of support for reforms.

Corruption has a negative impact on society and economy. The transition process in Central and Eastern Europe (CEE) uncovered dormant possibilities for corruption and necessity for appropriate steps to be taken. We document the state of corruption in the Czech Republic and the measures introduced to fight it. We cover sectors of society and economy according to their importance of a consequential corruption hazard. We also described the government's program of anticorruption and its achievements and failures. The state of corruption in the country, measured by the Corruption Perception Index, presents a serious problem since the index does not improve as the transition process advances. Numerous comparative studies, however, suggest that corruption is more prominent feature in a number of other transition countries. We believe that the substantial change of approach to the institutional framework is necessary in order to prevent and fight corruption successfully.

Hungary launched her first foresight programme, TEP in 1997. TEP is a holistic foresight programme, based on both panel activities and a large scale Delphi survey. It has put more emphasis on socio-economic needs than on S&T issues. The paper discusses why to conduct foresight, then describes what has been done (organisation, methods and results), and how methods have evolved in Hungary. Policy and methodological lessons as well as questions for further research are also offered. Heritage of the former system, the transition process itself and the current level of socio-economic development all played a decisive role throughout the programme. For socio-psychological considerations TEP was set up deliberately as a programme controlled by non-governmental experts, and in turn, the Steering Group delegated a great deal of autonomy to the panels. Thus methods were refined continuously. Given the fundamental socio-economic changes in Hungary and the enlargement of the European Union a strong emphasis was put on scenarios – both at macro and panel levels –, and a large number of Delphi-statements featured non-technological issues. To develop qualitatively different visions, as well as to align macro and panel futures, however, proved to be a rather difficult task.

The development of entrepreneurship and a private business sector in China pose various challenges to analysis. On the one hand, neo-classically based New Institutional Economics aims to find evidence that long-term investment and long-term commitment in and around firms can not be expected without deeply entrenched and state guaranteed private property rights. On the other hand, empirical studies within the China field concentrate on the political processes, in particular the interaction between the central state and local governments, at the danger of neglecting market forces, economic interests, and economic problems at stake. The empirical study on which the following is based took a different path by using a set of framing assumptions.

Eine präzise Darstellung des seit 1989 andauernden Übergangs von der Plan- zur Marktwirtschaft (sowie von der kommunistischen Diktatur zu Demokratien westlicher Prägung) in Mittel- und Osteuropa würde den Rahmen der vorliegenden Arbeit sprengen, die nicht den eigentlichen Transformationsprozess, sondern den Prozess der EU-Osterweiterung in den Mittelpunkt stellen möchte, wenngleich beide selbstverständlich untrennbar miteinander verbunden sind und in weitreichender Interdependenz zueinander stehen. Zunächst wird, nach einer kleinen Synopse des bereits Erreichten und der noch ausstehenden größten Reformherausforderungen in Mittel- und Osteuropa, in aller Kürze und anhand ausgewählter Indikatoren eine komparative Analyse zum Stand des Transformationsprozesses in den mittel- und osteuropäischen Ländern (im folgenden: MOEL) durchgeführt. Hiermit soll das Ziel verfolgt werden, einen vergleichenden Überblick über wichtige Determinanten der EU-Beitrittsfähigkeit der mittel- und osteuropäischen Länder (wie makroökonomische, institutionelle oder rechtliche Anpassung an die westlichen Industriestaaten bzw. den EU-Durchschnitt) zu gewährleisten, der so im Rahmen eines länderspezifischen Monitorings nicht möglich wäre. Als geeignete Indikatoren werden die Transition Indicators der European Bank for Reconstruction and Development (Osteuropabank, Sitz: London) und der (Struktur-) Konvergenzindikator von Deutsche Bank Research vorgestellt. Im zweiten Teil des vorliegenden Papers wird zum einen erörtert, was für und was gegen die Festlegung konkreter EU-Beitrittstermine für die mittel- und osteuropäischen Bewerberstaaten spricht, zum anderen werden drei verschiedene Beitrittsszenarien vorgestellt, denen unterschiedliche Eintrittswahrscheinlichkeiten zugeordnet werden. Abschließend werden die Bestimmungsfaktoren dieser Beitrittsszenarien erläutert - es wird herausgearbeitet, dass diese nicht nur ökonomischen Charakters, sondern in hohem Maße historischer, politischer und institutioneller Natur sind.

Do preferences for income inequality differ systematically between the post-socialist countries of Central and Eastern Europe and the Western established market economies? This paper analyses 1999 data from a large international survey to address this question. In particular, we examine whether attitudes to inequality differ between East and West even after the ?conventional? determinants of attitudes are controlled for. Results suggest that this is indeed the case. A decade after the breakdown of communism, people in transition countries are indeed significantly more ?egalitarian? than those living in the West, in the sense that they are less willing to tolerate existing income inequalities, even after the actual level of income inequality and other determinants of attitudes are taken into account. These results do not seem to be driven by a recent change in attitudes owing to a rapid rise in inequality during transition, but rather appear to constitute an attitudinal legacy carried over from socialism. This is very likely to have important implications for the political support of reform policy, in particular for the political feasibility of future welfare state reforms in these countries.

This paper investigates the determinants of Polish SME’s intentions to expand production in the context of possible economic expansion on accession to the EU. A model is developed using twenty-six explanatory variables derived from a questionnaire given to Polish SMEs in late 1999. Seven of these are found to be significant, namely: export activity, franchising activity, the technological level of an SME’s products, a recent increase in fixed assets, the difficulty in obtaining a bank loan, the level of human capital and the estimated proportionate change in income from 1997 to 1999. The latter is found to have a non-linear effect consistent with the interpretation of diminishing returns to intended expansion. Non-linearity also applied to the technological level of the firm’s products. This indicates that the optimism of an SME to future expansion is related to recent increase in turnover and investment, the size of the enterprise, the technological level of its products, the availability of credit, the extent to which it engages in international activity and the educational level of its workforce.

This Paper constructs and analyses a long run time series for regional inequality in China from the Communist Revolution to the present. There have been three peaks of inequality in the last fifty years, coinciding with the Great Famine of the late 1950s, the Cultural Revolution of the late 1960s and the 1970s, and finally the period of openness and global integration in the late 1990s. Regional inequality in China in 1999 exceeds the level experienced at its peak in the Cultural Revolution, and is near the peak level of inequality experienced during the Great Famine. Econometric analysis establishes that regional inequality is explained in the different phases by three key variables—the ratio of heavy industry to gross output value, the degree of centralization, and the degree of openness. Inequality has increased alongside spectacular performance in growth and poverty reduction. As China enters the WTO, pro-active measures encouraging liberalisation and investment in the inland regions may be required to promote more equitable growth in the future.

The transition economies in Europe and the former Soviet Union between 1991 and 1999 differed widely in terms of total capital flows and the share and composition of private flows. With some exceptions (notably Russia), the main source of private inflows was foreign direct investment. Portfolio investment was volatile, and concentrated in a handful of countries. Regressions show that direct investment can be well explained in terms of economic fundamentals, whereas the presence of a financial market infrastructure and a property rights indicator are the only explanatory variables that seem to have a robust effect on portfolio invest-ment. Copyright 2002, International Monetary Fund

Using a panel dataset containing information on FDI flows from market to transition economies, we establish the determinants of FDI inflows to Central and Eastern Europe: country risk, unit labour costs, host market size and gravity factors. In turn, we find country risk to be influenced by private sector development, industrial development, the government balance, reserves and corruption. By introducing structural shift dummy variables for key announcements of progress in EU accession we show that announcements have impacted directly upon FDI receipts but have not influenced country credit ratings. The Agenda 2000 announcement by the European Commission induced a bifurcation between the ‘first wave’ transition countries and the remainder of our sample. The underlying dynamics of the process illustrate that increases in FDI improve country credit ratings with a lag, hence increasing future FDI receipts. Consequently we suggest that the accession progress has the potential to induce virtuous cycles for the frontrunners but may have serious consequences for the accession laggards.

The Soviet Union was able to develop a large military-industrial complex and become the world’s second superpower despite the small size of its malfunctioning planned economy because defence was given high priority status and special planning, rationing and administrative mechanism were used to ensure attainment of national security objectives. However, in the period 1976-85 the effectiveness of priority protection diminished and defence institutions experienced more of the problems typical of the shortage economic system. The heavy defence burden also created growing difficulties for the civilian economy. The attempts by the Gorbachev government to reform the defence sector and improve defence-economic relationships during perestroika (1985-91) uniformly failed. For most of the transition period, the Russian military-industrial complex has been adversely affected by its low priority status, drastic cuts in defence spending, instability of the hybrid politico-economic system, and negative growth of the economy. The armed forces and defence industry have been reduced in size and their outputs of military services and equipment have fallen to low levels. Nevertheless, the Russian armed forces still have over one million troops, significant stocks of sophisticated conventional weapons, and a large nuclear arsenal. Since mid-1999 the priority of the defence sector has been raised significantly, defence spending has increased and the new government of President Putin has adopted ambitious plans to revive Russian military power by 2010. Economic factors will be of crucial importance in determining the success of this effort.

Improvements in economic efficiency and productivity are the most important sources for economic growth, however, have yet to occur in Russia. The Soviet Union left an institutional vacuum and large economic distortions behind, which set the stage for an established elite to systematically exploit factors of production for their personal benefit lacking the incentives to restructure. This paper generates some empirical highlights of the outcomes of industrial transformation from 1987 to 1997. The following results are worth mentioning: (1) Early steps of liberalization, the attempts to macro-stabilization and the launch of the privatization package did not bring about improved economic efficiency in industrial production; (2) Less concentrated and highly localized industries performed better, which can mainly be explained by the performance of the resource extracting industries; (3) Price liberalization revealed increasing returns in industrial production and the contribution of capital to output declined rapidly, while the contribution of labor increased.

East Germany remains unique among the transition economies. Soon after the fall of the Berlin Wall in 1989, it became part of the Federal Republic of Germany. German Union meant the transplantation of West Germany's legal, administrative and economic infrastructure to the five new Länder. The paper traces the economic changes since 1989 and assesses the convergence between West and East Germany during the last decade. We reach three main conclusions: First, there has been significant convergence in the administrative and economic realm, though persistent differences remain in the level of output and incomes as well as local capacities. Third, the Kohl government's policy towards East German transition, driven by short-term electoral considerations, has focused almost entirely on financing a high standard of consumption and too little on fostering investment and economic restructuring. Third, there is, therefore, a considerable risk that East Germany will remain a transfer-dependent economy for the foreseeable future. However, endogenous institutional change in the labour market, showing its first signs in East Germany, may become important in overcoming the structural problems in the new Länder.

This paper analyzes the inter-relations between economic and political processes during transition in 25 post-communist countries of Central and Eastern Europe and the former Soviet Union. The main findings are the following: First, economic liberalization generally has positive effect on growth even when controlling for initial conditions. The effect is U-shaped during the contraction and linear during the recovery, but in both periods complete liberalization is superior to no liberalization. Second, democracy has a negative effect on growth during the contraction, whereas its effect appears insignificant during the recovery. Third, economic performance is a strong determinant of support for the reform in elections: support for the reform falls with unemployment and increases with economic growth, output level relative to 1989, and, surprisingly, inflation. Finally, economic liberalization per se increases opposition against the reform, as the costs of the reform apparently go beyond deteriorating economic performance. The level of democracy, in contrast, increases the support for the reform.

Output decline has been a feature of the transition economies in the initial post-communist period, including in those countries that belonged to the former Soviet Union. However, explanations for the decline and its persistence have not been easy to find, and mostly they have focussed upon domestic factors in each economy. The theory of disorganization introduced the idea that disrupted supply chains following the demise of central planning might have a role in the explanation of output decline. This paper extends that idea to distinguish between supply from domestic sources, and supply from abroad. Using data for Ukraine and Kazakhstan, the paper finds - contrary to expectation - that the disruption of supplies from hard currency markets was more significant in explaining output decline in these countries than disruption of supplies from CIS partners. This suggests that institutional weaknesses in the areas of international banking, trade insurance, and the like, have been very important factors.

The Report focuses on the experiences of young people during the transition. It examines the advantages and the obstacles youth encounter as they grow up in rapidly transforming societies. The Report covers a broad range of issues, including the participation of adolescents in education and of young men and women in the political lives of their nations. It examines the special problems of young people in the areas of health and in the labour market. The Report calls for the full implementation of existing human rights ageements. It emphasizes the importance and the benefits of listening to youth and seeking their help in the search for solutions to the problems of young people.

This seventh Regional Monitoring Report focuses on the experiences of young people during the transition. It examines the advantages and the obstacles youth encounter as they grow up in rapidly transforming societies. The Report covers a broad range of issues, including the participation of adolescents in education and of young men and women in the political lives of their nations. It examines the special problems of young people in the area of health and in the labour market. It notes trends among youth in conflict with the law. The Report calls for the full implementation of existing human rights agreements. It emphasizes the importance and the benefits of listening to youth and seeking their help in the search for solutions to the problems of young people. This is highlighted by “Voices of Youth”, quotations from young people in the transition region as they speak about their difficulties and their dreams.

Venezuela’s economic system has been characterised by two attempts at “transition” to a modern economy: the first in 1958 at the start of its democratic system; the second in 1989 when it attempted to bring into being an open free market economy. These attempts have been unsuccessful in creating an open, participative and democratic economic society. One expression of this has been the relative decline in the manufacturing sector of Small and Medium Size Enterprises (SMEs) since 1960 and their absolute decline since the late 1970s. Statistical evidence is presented on this decline and it is placed in international context. Econometric testing of explanatory variables shows the significance of structural barriers in manufacturing and a lack of efficiency and innovation efforts by SMEs as key economic determinants of this process. This decline results from the deeply exclusionary nature of the economic structure, the roots of which lie in Venezuela’s political history. A genuine transitional economy implies a participative economic democracy and access to the productive resources of the economy so new wealth can be created and new firms can come into existence. The decline of SMEs highlights not only an economic problem in Venezuela but also the wider political problem of lack of real democratic economic participation.

'I giovani nelle società in trasformazione' analizza le esperienze della 'generazione della transizione', i 68 milioni di giovani tra i 15 e i 24 anni di età dell'Europa centrale e orientale e della CSI. Essendo la prima generazione a terminare gli studi, cercare lavoro e fondare una famiglia in un clima sociale ed economico nuovo, essi mettono alla prova le riforme dello scorso decennio. Di questa generazione il Rapporto esamina le condizioni di salute, l'ingresso nel mercato del lavoro, i possibili conflitti con la legge ed il ruolo di giovani cittadini, e mostra come il progresso della condizione dei giovani e l'avanzamento della transizione siano processi che si rafforzano a vicenda. I giovani colgono le nuove opportunità con iniziativa, creativa e flessibilità. Ma le nuove libertà portano anche nuovi rischi, inclusi problemi sconosciuti alle generazioni precedenti: disoccupazione, droga, aumento delle disparità e dell'esclusione.

The Highly Indebted Poor Countries' (HIPC) Initiative provides debt relief to a group of highly indebted poor countries. The capacity of the multilateral financial institutions (MFIs) to manage this programme is analysed and the conclusion is drawn that it is unlikely to achieve the purposes for which it has been established. Criticism is based upon the MFIs' own policy advice as well as that of public campaigners, and also other economists' appraisals of MFI performance. The conclusion is drawn that there are a number of reasons for wishing to restrict the role of the MFIs in this process and that there should be movement towards a simplified framework for debt cancellation with a greater role for private institutions and market-oriented payments disciplines.

This paper discusses the possible pathways between macroeconomic change and child welfare and develops a typology of the risks that children may face at different stages of the lifecycle. Adopting a multi-dimensional view of child well-being, trends in both economic measures of poverty, based on incomes and expenditures, and in selected capability-based indicators are then examined. The indicators selected reflect the health and survival, education and personal development of children and their social inclusion/exclusion. Not all the news is bad but the data show that the human cost of economic transition has been high and children, far from being protected from its impact, have been amongst those who have suffered the most.

Young People in Changing Societies focuses on the experiences of the ‘transition generation’ - the 65 million young people aged 15-24 in Central and Eastern Europe and the Commonwealth of Independent States. They are putting the reforms of the last decade to the test as the first generation to complete their education, look for jobs and make decisions about raising families in a new socio-economic climate. The Report looks at their health, their education, their entry into the labour market, their possible conflicts with the law and their role as young citizens, finding that progress for young people and progress in the transition are mutually supportive. Young people are grasping their new opportunities with initiative, creativity and flexibility. But new freedoms also mean new risks, including challenges almost unknown to earlier generations: unemployment, drugs, greater inequality and exclusion.

To achieve sustainable economic growth in the transition countries,it is crucial that enterprise performance is improved. However, it isnot clear which factors are essential for this. On the basis of theempirical literature on potential determinants of enterpriseperformance in Russia, surveyed in this paper, only two firmconclusions can be made. Firstly, more regional competition isrelated with better performance. Secondly, privatization per se isnot. If there is one ownership category performing better, it is newprivate enterprises. The actual situation in Russia on these countsis bad. There is ample room for further empirical research on theabove.

Moldova holds the unenviable distinction of having suffered the largest fall in GDP and living standards among the former socialist countries in Europe. By mid-1999 GDP had fallen to less than 30 per cent of its level in 1990, while living standards had plummeted from a situation of relative well-being before independence to one of abject poverty. This development has neither been God-given nor the result of particularly bad governance. Indeed, Moldova was for a long time praised by IMF and others as a progressive reformer and 'over-achiever' in terms of macro-economic stabilisation policies. The present study is devoted to an analysis of the economic and political development of Moldova since independence and to the social consequences of the economic collapse. The final chapter discusses the reasons behind the dismal development.

Russian agriculture in transition (1991-1998) was characterised by a production collapse due to aloss in quality and quantity of acreage, disinvestments, falling purchasingpower, and increasedimports. Neither traditional agriculture nor the nascent family farm sector havebeen able to ensure sustained food production. Instead, the impoverishment of the population hasresulted in a considerable increase in the relative importance of household food production.In the present paper some features of household food production are explored: (1) thedevelopment in acreage used forHFP, (2) the number of people involved over the years, (3) the availability anduse of the necessary factors of production, such as land, labour, and variable inputs, (4)characteristics of households involved, and (5) implications for welfare.

The 1997 collapse of the Albanian economy caused by the collapse of economy-widePonzi schemes contrasts sharply to itssuccess status as a post-socialist transition country in the years 1992-1996. Inthis paper, an attempt is made to explain this'Albanian Paradox'. The specific Albanian conditions for the growth of Ponzischemes are identified. Theoretically, theAlbanian Paradox can be interpreted as one version of the 'Financial InstabilityHypothesis' suggested by Minsky.Investigation of the underlying factors that render financial markets fragilesuggests that the Albanian case is extreme butnot rare in the region. In the post-socialist setting, expectations of thepopulation and other potential investors based on alack of reliable information on returns may lead to excessive capital inflow.This trend is reinforced if governments areweak, and if transition policies rely largely on liberal financial marketdevelopment, rapid privatisation and external capitalinflows, facilitating the tendency to instability. Identification of this trendis hindered if policy makers and observers largelyrely on macroeconomic indicators in monitoring the economy.

Growth empirics with institutional measures is performed for 25 transition countries overthe period 1990-95. Estimation results suggest that (particularly state) institutions aresignificant for growth and, especially, foreign direct investment (FDI), the latter in turnbeing important for the former. It is also found that the correlation between institutionsand FDI is more likely to be a (direct) causation. Only inflation and war seem to have beenrelatively more important for growth performance in transition countries than institutionsper se. This suggests that macroeconomic stabilization and peace should be the main policypriorities in transition, closely followed by institution building.

This Report investigates an important yet largely unexplored topic: the relationship between women's rights and welfare and the democratization and market-oriented transformation of Central and Eastern Europe and the former Soviet Union. Through its Regional Monitoring Reports, UNICEF has been examining the ways in which the collapse of the communist governments has affected the lives of children. The Report asks: Did gender equality exist behind the egalitarian rhetoric of communism? How have women fared under the emerging market democracies? Is the actual and potential contribution of women to healthy change fully recognized and realized?

The 1999 Central and Eastern Europe and Commonwealth of Independent States Regional Monitoring Report focuses on the experiences of girls and women during the transition, highlighting their role in regional progress and the obstacles they face. The Report covers a broad range of issues, including women’s participation in the emerging market economy and democratic governments, female access to health and education, trends in family formation and violence against women and girls. The Report calls for the full implementation of existing human rights agreements and emphasizes the importance and benefits of integrating gender equality into the foundations of these new societies. The MONEE project is a unique source of information on the social side of the transition taking place in the CEE CIS Region. Each year's Report contains an update on the social and economic trends affecting children and families in the region, in-depth analysis of a particular theme and a detailed Statistical Annex.

Il Rapporto evidenzia il fallimento del comunismo nella promozione di una reale cultura dell’uguaglianza, risulta anche evidente che il sistema ha prodotto alcune positive eredità per le donne. Un forte investimento nei servizi sociali di base ha significato un alto grado di istruzione tra le donne e buoni livelli di assistenza sanitaria; le donne avevano ottime prospettive di lavoro, un livello alto di assistenza all’infanzia, possibilità di guadagnare e di curare i familiari. Anche dieci anni dopo l’inizio del processo di transizione, in termini di sviluppo umano, la differenza tra uomini e donne è minore rispetto a molti altri paesi con livelli simili di reddito.

The 1999 Central and Eastern Europe and Commonwealth of Independent States Regional Monitoring Report focuses on the experiences of girls and women during the transition, highlighting their role in regional progress and the obstacles they face. The Report covers a broad range of issues, including women’s participation in the emerging market economy and democratic governments, female access to health and education, trends in family formation and violence against women and girls. The Report calls for the full implementation of existing human rights agreements and emphasizes the importance and benefits of integrating gender equality into the foundations of these new societies. The MONEE project is a unique source of information on the social side of the transition taking place in the CEE CIS Region. Each year's Report contains an update on the social and economic trends affecting children and families in the region, in-depth analysis of a particular theme and a detailed Statistical Annex.

The differences in income distribution between market and planned economies are considered in two ways. First, using benchmarks from the OECD area, evidence from the countries of Central and Eastern Europe and the former Soviet Union during the socialist period is reviewed. Second, the authors consider the transitions currently being made by the latter countries. Three factors are then considered: (i) the distribution of earnings of full-time employees, (ii) the distribution of individuals’ per capita household incomes, and (iii) the ways in which non-wage benefits from work, price subsidies and social incomes in kind change the picture. For the socialist period long series of data, often covering several decades, are available and thus changes in distribution under the socialist system can be tracked and diversity between the countries shown. For the period of transition, the series of data are inevitably shorter, however, it is possible to avoid basing conclusions on evidence drawn from single years. During transition, as under socialism, the picture is varied. Russia has experienced very sharp increases in measured inequality to well above the top of the OECD range. The Czech Republic, Hungary and Poland have seen more modest rises. However, a satisfactory analytic framework encompassing enough features of the transition to help interpretation of the data is lacking.

It has recently become customary to argue that Russian economic transformation since 1991 has failed because of bad policy advice and mistaken policy choices. Though Russia’s performance leaves much to be desired, such criticisms are based on a failure to analyse the real choices available to reformers in the post-perestroika period. The paper, criticising in particular the views presented by Jospeh Stiglitz, shows that the Chinese reform path was not available to Russia, that mass privatisation was influenced more by political necessity than theoretical choice, and also discusses the relation between doctrine and necessity in policy making more generally. The final section of the paper characterises Russia as a case of weak state, and identifies several of the consequences arising.

Central European countries highlight the importance of institutions as they are of somewhat different nature in this diverse group of countries, given their different history. Briefly, before World War II there was a market economy in place in Central Europe – as opposed to most Eastern European countries and former Soviet republics – based on private property. These economies were linked to the wider European economic space via foreign trade, subsidiaries of, and joint ventures with, foreign firms operating there and subsidiaries of Central European firms active abroad. Then they went through the planned economy period and right now the transition process. As three rather distinct socio-economic systems and their impacts on the national system(s) of innovation can be observed in these cases, it is a ‘living’ laboratory where evolving institutions, including re-emerging old ones, can be explored. Thus it seems worthwhile studying these cases in-depth as they might provide a number of important, perhaps eye-opening, lessons for more general theorising. This chapter analyses institutional changes in Hungary from the point of view of science and technology (S&T) policy by pulling together some recent theoretical developments in the economics of innovation and a fairly descriptive approach. The underlying question is whether it is possible to devise a coherent, feasible S&T policy and implement it in an efficient – or at least a satisfactory – way in a transition economy, or whether S&T policy, together with other major institutions, is also evolving. In other words, is S&T policy an outcome of conscious, well-designed and co-ordinated efforts in this period (can it be?), or should it be seen as a resultant of deliberate and unintended consequences of actions and interactions of a host of actors? Theories and models of innovation as theoretical foundations for S&T policy are briefly outlined in section 2. Then section 3 describes the legacy of central planning in Hungary. Recent changes in the science and technology system are analysed in section 4, and policy conclusions are presented in the final section.

The authors analyze the characteristics of recession, linking it with changes in economic agents' behavior after liberalization. They attach special importance to labor shifts between the "old" and the "new" sectors. Inter-sectoral shifts in Russia have been slowed down due to the practice of labor hoarding in the old sector. To explain these phenomena in the Russian economy the authors construct an equilibrium model of labor markets which assumes the existence of collectivist labor relations in the old sector. The results of their study show that both stronger personnel monitoring in enterprises with state and mixed ownership and the abolition of collectivist labor relations would have the effect of increasing labor productivity, reducing the gap between officially registered employment and actually used labor in the old sector, and leveling wage rates in the old and the new sectors. These measures might create the necessary preconditions for an upturn in the economy and long-term growth. The authors also consider a dynamic model which sees the shadow sector as concealed activities of firms working in the formal economy. Computer simulation of the model produced varying qualitative results depending on the selected parameters. The authors find that a reduction in the tax rate is crucial for increasing the official output.

Falling output and living standards have pushed countries in transition from the socialist system to re-consider how best to target public resources on those in need. The paper investigates the workings of a new social assistance benefit in Uzbekistan, the largest of the former Soviet Central Asian republics, administered by community organizations, the Mahallas. Data are used from a 1995 household survey to assess the scheme's success in targeting the most vulnerable households, using a variety of indicators including income, durable goods ownership, agricultural assets, employment status, and the anthropometric status of children. The separate probabilities of knowledge of the scheme, of application for benefit, and of award are modelled.

The fifth Regional Monitoring Report continues the Centre's pioneering work of emphasizing the social side of the transition in Central and Eastern Europe and the former Soviet Union, in particular the needs and rights of children. The Report presents detailed information on changes to educational systems and analysis of key issues relating to equity and rights in schooling. Trends are shown in enrolment, in the costs of schooling faced by families, and in the social support given by schools. Other topics covered include education for the disabled child, decentralization of education and its implications for equity in access, and the future of programmes for early childhood development. The Report includes an update of welfare trends in the region, an introduction to the theme of education and an overview of the main findings. The purpose of the Report is to provide factual information and fresh ideas for policy-makers and their advisors both inside and outside the region, and for all those involved in educational policy, including UNICEF, other international organizations, NGOs and the media. It also provides an invaluable source of information for economists, statisticians, social policy experts and other researchers.

Management of capital inflows has unexpectedly become a major challenge in transition economies. These countries were expected to have an insatiable demand for foreign capital, and an excess demand for capital inflows was, therefore, predicted by most observers. Foreign investors are also known to be very selective in their choice of markets, and these countries were a big unknown. Moreover, macroeconomic policy in these countries has been dominated by the objective of disinflation. We explain in this paper the reasons why some transition countries have been an attractive market for foreign investors and how important has foreign capital been for these countries. But the bulk of the paper provides an assessment of government policies to manage foreign capital inflows. We evaluate the policies against the background of different government objectives and in terms of the actual policy instruments used by the monetary authorities, the timing and sequencing and the costs of these interventions. We argue that the initial responses to capital surges were poor; the authorities were reluctant to adjust their original policies and learn from the experiences elsewhere. Eventually, their policy responses were changed but until the costs of inertia became too high. The authorities have effectively used sterilization policies, more flexible exchange rate policies combined with tight monetary and fiscal policies. They also understood that an effective management of capital flows must start from well functioning markets, and have been prepared to adopt structural policies whenever market imperfections could be identified.

The first half of the 1990s brought major changes to Hungary. The positive sides of the transformation in the Hungarian economy and society were accompanied by less welcome aspects - a sharp fall in GDP, double-digit unemployment and falling real incomes. How have children fared in these circumstances? This paper considers the changing position of children in the Hungarian income distribution, comparing it to that of the elderly - another potentially vulnerable group whose incomes, like those of households with children, are a concern for policymakers.

Data on the weight and height of children are used to assess living standards and public policy in Uzbekistan, the most populous of the Central Asian republics. The paper begins by making the case for the use of such data, contrasting them with monetized measures of welfare based on household incomes or expenditures, before going on to review the problems of interpretation that anthropometry presents for the economist. The prevalence of stunting and wasting in three regions of Uzbekistan is compared with that in neighbouring Kazakhstan and with other countries from outside the region. Multivariate analysis is then used to test three hypotheses concerning rural-urban differences in living standards, the impact of kindergartens on nutritional status, and the targeting of means-tested social assistance.

Since the break-up of the Soviet Union in 1991, the 88 regions of the Russian Federation have enjoyed increasing autonomy, and by 1994 almost half of all budgetary expenditure in Russia was spent at the regional level. This paper examines the system of transfers which has developed in Russia over the last few years and asks how far it has succeeded in making up for regional revenue disparities. Transfers seem to be directed in broadly the right direction before and after the introduction of the formula mechanism: transfers are higher to regions with greater needs. The bad news, however, is that the impact of the transfers has been minimal. Lower revenue regions may have received more in transfers than higher revenue regions, but not nearly enough to offset the difference in revenue.

This paper deals with liberalization and the evolution of output during the transition from plan to market. It explains why strong liberalization leads to a comparatively steep fall in output early in the transition, but a relatively strong recovery later on. Because it takes time to restructure the capital stock inherited from the old system, liberalization initially leads to transitional unemployment of capital and the contraction of the old enterprise sector. By making room quickly for the new, more efficient enterprises, however, liberalization also sets the stage for recovery and a much higher level of income in the medium term.

This paper contains a selective review of some of the key fiscal issues faced by transition economies. The twelve countries that provide the empirical background for this study have all been under Fund programmes for at least some of the time since they initiated their transitions from plan to market. The focus of the paper is on medium- and long-term fiscal issues, such as government solvency and the evaluation of the sustainability of the government’s fiscal-financial-monetary programme. The purpose of the paper is to assist the design and implementation of future Fund programmes and to improve the quality of the debate about the design and conduct of fiscal policy in transition economies generally. The outline of the paper is as follows. Following the introduction, which contains a brief discussion of the roles of the Fund, Section II sets out a framework for evaluating the sustainability of the fiscal-financial-monetary programme of the state. Section III contains some numerical material on public debt, deficits (including quasi-fiscal deficits) and monetary financing or seigniorage. Section IV discusses eight specific budgetary issues I consider to be of special relevance to transition economies. Section V concludes by summarizing the lessons from this study in a number of propositions.

This working paper documents the economic and social crises in Georgia during the 1990s, their structural causes and the survival strategies adopted by the Georgian population, the vast majority of whom became impoverished, with large families particularly vulnerable. It also examines the hopes for improvement that began to appear in 1995 with the stabilization of the political and criminal situation, the adoption of a new currency and constitution, and real rises in GDP, production and the value of wages across the economy.

Despite improved economic performance in Central and Eastern Europe in 1994 and 1995, there was still no clear and comprehensive evidence that the welfare crisis was ending. This third Regional Monitoring Report confirms the social trends observed since 1989, showing in particular that children have suffered disproportionately in the fields of child care, education, adolescent protection and poverty. The Report maintains that untimely, partial, or clearly erroneous policies have contributed to this deterioration in child welfare and proposes a series of policy guidelines for a "transition with a human face". These include the promotion of an employment and self-employment based anti-poverty strategy and some important measures in the fields of health, education and child care.

The collapse of communism in East Germany took place alongside unification with its democratic neighbour, West Germany. This made the East German experience of the ‘transition’ - from the planned to the free-market economy - unique among that of the post-socialist states. On the one hand, unification allowed East Germans to benefit from the resource and human capital of one of the world’s richest countries. On the other, the sudden bringing-together of two populations geared to different standards of living had a negative psychological impact among the poorer Easterners. This paper looks at how such specifics of the East German experience have influenced the development of policies and services for the country’s children.