Public support for economic transition

This paper focuses on the Czech economic transition and aims to identify the determinants of unusually high and long-lasting public support for market reforms. The study is based on a unique combination of statistical analysis of survey data and oral history (interviews with reformers, managers etc.), which has enabled us to depict the views of the general public as well as of many people involved in decision-making processes on both macro and micro levels. These findings allow us to propose recommendations on how to gain and maintain public support for economic reforms. Above all, reformers must utilize the period of euphoria and communicate the individual steps of reform with the public.     

The Czech economic transition

The processes that will drive the next stage of the Czech transition are likely to be similar to those promoting real convergence in the countries of the EU periphery. We draw on previous modeling research on these latter economies to construct and calibrate a small macrosectoral model of the Czech Republic. Model simulations explore some key policy issues facing CEE‐country decision‐makers: labour market reforms, disinflation and industrial development. Our analysis suggests that much can be learned from the experience of countries like Ireland and Portugal which have converged substantially towards EU average living standards.     

Happiness,religion and economic transition

In an important paper, Lelkes (2006) examines the impact of transition on happiness in Hungary using two Hungarian household survey datasets for the years 1992 and 1998. In particular, Lelkes examines the impact of religious behaviour on self‐reported well‐being. Using ordered logit models, Lelkes estimates and presents the marginal effect associated with membership in the highest ‘fully satisfied’ category, and finds that religious people have a consistently higher probability of being ‘fully satisfied’ than others. This effect is stable in the 1992 and 1998 samples. The goal of this article is to expand and extend Lelkes' earlier work in several ways. First, we use a different dataset. Second, we examine the effect of religious behaviour on well‐being after transition not only for Hungary, but also for Bulgaria, the Czech Republic, Poland and Slovakia. Third, unlike Lelkes, we have access to information indicating whether respondents report being financially better off after transition. With a different dataset, additional country samples, and a measure of financial well‐being, we are able to confirm and extend Lelkes' finding that religious behaviour is associated with improved well‐being after transition in all countries we examine.     

Public deficits and economic growth

Considering an integrated area, this paper deals with the balance between the positive effects in the degree of economic cohesion resulting from R&D subsidies, temporarily granted from an imitator and less developed country, and the external negative effects arising from the eventual creation of excessive public deficits.We propose and numerically solve a model of a monetary union between two countries, one being innovator and the other imitator. Results suggest the pertinence of allowing for a temporary differentiation of fiscal discipline rules in favour of the less developed country. R&D subsidies granted by this country seem to lead to an easier catching-up without producing important negative external effects, also as not hurting severely the conditions for long-run sustainability of public accounts.     

The end of economic transition

The transition from plan to market was the largest natural experiment in economics ever. Now, 20 years from the start of transition, all former socialist countries are market economies at the middle stage of economic development, and convergence with neighbours, if not with the developed world, is largely achieved. With hindsight, it is clear that economists have spent too much time debating proper sequencing of reforms and the fine‐tuning of reform packages. At the same time, the magnitude of the output and consumption fall in some countries was vastly underestimated, while the benefits of reforms have taken longer to materialize than expected. Successful practitioners of reform praise perseverance during and after the initial setbacks and willingness to make political compromises. At the conclusion of the natural experiment, transition economics has all but vanished as an academic discipline, although it played a crucial role in the formation of modern political economics.     

Social classes,demographic transition and economic growth

This paper analyzes the role of the demographic transition in the emergence of sustained economic growth, and shows that these two processes are related. Unlike previous contributions which have focused on the importance of human capital, this paper suggests that capital accumulation, and the existence of different social classes may provide an alternative explanation for the observed pattern of output, fertility rates and wages during the 19th century. The framework presented shows that during the first phase of industrialization, a decline in capital–labor ratio reduces the wage rate and increases the dependency of the family unit on child labor, increasing fertility rates. However, in later phases the increase in the capital–labor ratio, due to the saving of the business elite, reduces the necessity of child labor bringing about the demographic transition.     

Human capital and life satisfaction in economic transition

This study explores the life satisfaction of Egyptians – with a particular focus on the impact of higher education on happiness – both before and after that country's Arab Spring of 2011. Ordered logit results point to positive and significant relationships between life satisfaction and both perceived high incomes and the human capital variable, good health, for the pre- and post-Arab Spring periods in Egypt, thus confirming prior studies of transition economies. For a second human capital variable – secondary education – the results indicate a positive and significant relationship with happiness in pre-Arab Spring Egypt, while that relationship for post-Arab Spring Egypt is negative and significant. This particular finding is probably the result of the failure of educated Egyptians to achieve a better life despite their investments in human capital – due to the lack of opportunity that accompanied the failure of the country's Arab Spring to change the political and social environment.     

Public ownership of banks and economic growth

In an influential article, La Porta et al. (2002) argue that public ownership of banks is associated with lower GDP growth. We show that this relationship does not hold for all countries, but depends on a country's initial conditions, in particular its financial development and political institutions. Public ownership is harmful only if a country has low financial development and low institutional quality. The negative impact of public ownership on growth fades quickly as the financial and political system develops. In highly developed countries, we find no or even positive effects. Policy conclusions for individual countries are likely to be misleading if such heterogeneity is ignored.     

Individual values and household finances

We create individual cultural values measures for households and show that this is an important determinant of their financial behaviour. To date, personal cultural values have only been indirectly measured through religion and trust. But these are, at best, an approximation of true cultural values. Applying a holistic framework from the World Values Survey (WVS), we create individual measures of cultural values, and show that the self-expression values of this framework are positively associated with households’ financial decisions. Examining the individual cultural values that make up the WVS model, we further show that happiness, trust, and playing an active role in society, are individually important determinants of household financial decision-making. Our study shows that cultural values can be brought from a generalized national level to the individual level in order to improve our understanding of household financial decision-making.     

Public financial institutions and economic concentration in india

This paper analyzes the pattern of financial assistance by the public financial institutions in India to private industrial enterprises during the period 1969–1982 to study the impact on economic concentration. The enterprises were classified into the same size and house categories as used in an earlier and similar study by the Dutt Committee for the period 1956–1966. There were differences among financial institutions in assistance to various categories of enterprises, but on the whole, we find that a clear preference continues to be accorded to large houses during the period 1969–1982. The findings are contrary to the Indian economic policy objective of discouraging economic concentration.     

Constitutions and economic reforms in transition: an empirical study

Experiences of countries undergoing post-socialist transition in Central and Eastern Europe, as well as Central and Southwestern Asia, during the last 17 years, reveal great variety in economic reform paths and their successful implementation. At different moments of transition varying constitutional rules have also emerged in these countries. In our empirical study we find a significant relationship between constitutional rules and the economic reform process in post-socialist countries of Europe and Asia after 1989. In principle, the results confirm the arguments of the so-called negative constitutionalists, according to which the main function of the constitution for economic reforms in transition is its functioning as a commitment mechanism. The conclusions constitute an important step towards verification of different and often conflicting theories proposed by constitutional economists and allow to formulate practical recommendations for constitutional legislators and other actors capable of influencing constitutional change in countries encompassed by the study.

Methods of privatization and economic growth in transition economies1

We examine how different methods of privatization might have affected growth in transition economies. Using several econometric specifications, including fixed effects and GMM, we estimate a cross‐country panel growth model for 1990–2003. We find only voucher privatization to have been significantly associated with faster growth. Moreover, neither private sector development per se nor capital market development exercised a significant influence. We speculate that voucher privatization may have been effective because of the speed with which links between firms and the state were severed.     

Public sector and economic growth: the Greek experience

Over the past two decades there has been an increase in the relative size of the public sector, accompanied by a decline in the growth performance of the Greek economy. In an attempt to highlight the contribution of the government size to growth, an analytical framework is developed, incorporating the possibility that marginal factor productivities are not equal in the public and private sectors. Econometric analysis utilizing this framework points to a negative relationship between government size and economic growth. This seems to derive, in part, from intersectoral diseconomies generated by the growing share of deft-financed government activities.     

Public capital, asymmetric information, and economic growth

Abstract.  We investigate the provision of public capital in an endogenous growth model with asymmetric information. In a credit market with costly screening, we show that the equilibrium contracts are characterized by the self‐selection of borrowers. Through identifying an additional adverse effect of taxation on growth, we show that the optimal tax rate in our model is smaller than the output elasticity of public capital. Therefore, our analysis justifies a more conservative tax policy in the presence of asymmetric information. Furthermore, our model suggests a number of implications that appear to be well supported by preliminary evidence in cross‐country data. JEL classification: D82, H21, O41     

Public infrastructure,production organization,and economic development

We develop a political economy model of growth to examine economic development led by the interactions between an economic decision concerning a firm’s production technology (CRS vs. IRS technology) and a political decision concerning public infrastructure. We show that multiple equilibrium growth paths occur due to differences in expectations regarding the quality of public infrastructure. These multiple paths illustrate why economies with poor initial conditions can catch up to and, furthermore, overtake economies with better initial conditions. Our result could explain the experiences of some East Asian countries where the co-evolution of public infrastructure and industrial transformation spurred economic development.     

Public finance and the optimal speed of transition*

We develop a general equilibrium model that jointly considers the influence of capital accumulation constraints and of labour market frictions on the process of transition. We endogenize the economic and budgetary costs of different government policies and show that, early in transition, governments ought to subsidize state firms. Provided that intertemporal commitment is feasible, this policy limits the initial output fall, which relaxes capital accumulation constraints, accelerates transition, and increases welfare. Moreover, by resorting to indirect – instead of direct – taxes, governments can bring the path of transition closer to the first best. Yet, political pressures may induce a policy of suboptimal subsidization.