Investment allocation and urbanization in socialist economic development: The case of Czechoslovakia of

This paper tests two hypotheses about economic ;fficiency of development strategies of socialist countries. The first is that they overinvest in industry and that increased investment in agriculture would increase the output growth rate. The second is that efforts to limit urbanization have enabled these countries to grow more rapidly by minimizing the need for urban-infrastructure investments. The hypotheses are tested by means of counterfactual simulations performed with an econometric model of Czechoslovakia. We find that growth would have been faster only in the long run, had more investment been directed to agriculture. Urbanization policies appeared only to control inflationary pressures.