Decline and Recovery in Transition Economies: The Impact of Initial Conditions

This paper examines and analyzes the stylized facts of the contemporary transition economies, specifically the initial decline and subsequent variable recovery of real gross domestic product. We test the argument that a major source of observed differences in magnitude and duration of decline is the extent of initial disequilibrium of these economies. We specify and estimate a simple econometric model relating the observed pattern of decline to important pre-transition disequilibrium forces, especially macroeconomic distortions. Microeconomic distortions, conceptual, and measurement issues are considered as well. The transition experiences of former Soviet republics are compared with those of countries in Eastern Europe. Journal of Economic Literature, Classification Numbers: O10, P20, P50. 6 figures, 1 table, 21 references.