Liberalization and the Behavior of Output During the Transition From Plan to Market
IMF Working Papers, April 1, 1997
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- Liberalization and the Behavior of Output During the Transition From Plan to Market
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Bibliographic details
- Authors: Ernesto Hernández-Catá
- Published: April 1, 1997
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451969979.001
Summary and main finding
- The paper examines liberalization and the evolution of output during the transition from plan to market.
- Strong liberalization leads to a comparatively steep fall in output early in the transition, but a relatively strong recovery later on.
- Liberalization initially causes transitional unemployment of capital and contraction of the old enterprise sector because it takes time to restructure the capital stock inherited from the old system.
- By making room quickly for new, more efficient enterprises, liberalization sets the stage for recovery and a much higher level of income in the medium term.
Mechanism and role of capital restructuring
- Transitional unemployment of capital arises because existing capital stock is structured for the old system and cannot be reallocated instantaneously.
- The contraction of the old enterprise sector follows rapid liberalization as market forces reallocate resources away from inefficient firms.
- Rapid liberalization accelerates the entry and expansion of new, more efficient enterprises, enabling a stronger medium-term recovery in output.
Scope, subjects, and keywords
- Subject areas: Consumption, Inflation, National accounts, Prices, Production, Production growth.
- Keywords: Baltics, Central and Eastern Europe, Consumption, Inflation, Liberalization, liberalization effort, liberalization index, liberalization process, liberalization variable, Output, Production growth, real GDP, Transition, type-B firm, WP.