Does choice of transition model affect GDP per capita growth?
After the resolution of the Soviet Unions strict control over its satellite with beginning on the 9th of November 1989, the Central and Eastern European Countries (CEEC) began their transition towards a market economy. How to approach the economic system of a free market has been divided into two major policies – shock therapy and gradualism. The first policy is implemented with speed and one-shock change within the economic sectors as a focus while the second constitutes of slow and gradual implementations. The transformation process in itself consists of several variables, for e.g. privatization of state-owned properties, macroeconomic stabilization and liberalization of prices and trade. Depending on what policy chosen, the variables were implemented at different times and with different speed. The views among economists regarding which of the two models that achieve the best result when transforming differs widely. Hence, the purpose of this thesis is to investigate which of the two models that have had the best effect upon the GDP per capita growth in the chosen CEEC. Ten CEEC were picked to have a fair representation for each policy, with five countries representing each policy group and the years measured were 1992-2003. In addition, for a graphical analysis to be performed and to distinct CEEC from already established market economies, five reference countries were included. The results obtained indicate that the policy choice has no impact on average GDP per capita growth. Instead we concure with earlier research that claim that preconditions and sequential order of the market reforms have a larger impact on GDP per capita growth. Additionally, empirical results indicated that there is a significant difference in the GDP growth over the last decade between our CEEC and the reference countries.
School:Högskolan i Jönköping
Source Type:Master's Thesis
Keywords:economic growth transition economies ceec market economy shock therapy gradualism
Date of Publication:10/10/2007