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The Optimal Speed of Transition: A General Equilibrium Analysis

100 citations0/0 files storedInternational Economic Review

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Post-Communist Economic and Political Transition China's Socioeconomic Reforms and Governance Russia and Soviet political economy

Abstract

We present a benchmark model for the optimal speed of transition from a state‐owned to a private market economy, based on the consumption‐savings decision in a closed economy. We abstract from frictions to focus on the macroeconomic conditions for accumulation of private capital and closure or restructuring of state‐owned enterprises. It is shown that hard budget constraints compensate for too slow speed of enterprise closure but that an excess speed of closure may slow down transition because of output contraction effects. This will especially be the case if such a deviation occurs at early stages of transition.

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References

1969A General Equilibrium Approach To Monetary Theory 1982Tobin's Marginal q and Average q: A Neoclassical Interpretation 1981Intertemporal Substitution in Consumption 1993The Socialist System: The Political Economy of Communism.1989Transitional Dynamics and Economic Growth in the Neoclassical Model 1994On the Speed of Transition in Central Europe 1992Economic Reform and Dynamic Political Constraints

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2002Growth in Transition: What We Know, What We Don't, and What We Should 1996Stabilization and Growth in Transition Economies: The Early Experience 2001The Transition to a New Economy After the Second Industrial Revolution 2001The Transition to a New Economy After the Second Industrial Revolution 2003Job Creation and Job Destruction in Transition Countries1 2005The Political Economy of Poland's Transition 2001Speed of adjustment and self-fulfilling failure of economic reform

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