1. ¹New Economic School, Moscow, Russia. E-mail: vpopov@nes.ru
2. ²Institute of European and Russian Studies (EURUS), Carleton University, Ottawa, Canada. E-mail: vpopov@ccs.carleton.ca

¹This paper is the logical continuation of my earlier article in Comparative Economic Studies 2000: 42(1, Spring): 1–57. The arguments of this earlier article, however, are reconsidered in light of new research and evidence. I am grateful to Barry Ickes, Jeffrey Miller, Gur Ofer, Victor Polterovich and the anonymous referee for the comments.

Abstract

This paper starts by separating the transformational recession (reduction of output in most transition economies in the first half of the 1990s) from the process of economic growth (recovery from the transformational recession) in 28 transition economies (including China, Vietnam and Mongolia). It is argued that the former (the collapse of output during transition) can be best explained as adverse supply shock caused mostly by a change in relative prices after their deregulation due to distortions in industrial structure and trade patterns accumulated during the period of central planning, and by the collapse of state institutions during transition period, while the speed of liberalisation, to the extent it was endogenous, that is, determined by political economy factors, had an adverse effect on performance. In contrast, at the recovery stage the ongoing liberalisation starts to affect growth positively, whereas the impact of pre-transition distortions disappears. Institutional capacity and reasonable macroeconomic policy, however, continue to be important prerequisites for successful performance.