INTRODUCTIONINTRODUCTION

• Output fell sharply• Private enterprises overtook the state

sector• Exports rose-Moving toward industrial

countries• Poverty increased sharply• Average poverty rates (1990-1998)

Explaining variation in output performance Initial conditions External economic shocks Policies What initial conditions matter Conclusion

Output Fell SharplyOutput Fell Sharply

Onset of the transition there was a sharp initial fall

On the next page the figure shows us this initial fall

Then fast recovery and sustainable growth followed

Another page shows us this situation

The CIS had an average of 6.5 years of declining output

The CIS had recovered only 63 percent of its starting GDP values

Poland had the shortest and mildest recession

Armenia, Georgia and Moldova saw the steepest declines

Industry and agriculture declined by about 9 percent of GDP in CIS

Industry Shrank and Industry Shrank and Services GrewServices Grew CSB and CIS shifted to market economy These two groups had economic

liberalization Industry shrank and services grew The table show us this situation

Private Enterprises Private Enterprises Overtook the State Overtook the State SectorSector After shifted to market economy, private

sector grew Show as:

Export Rose-Moving Export Rose-Moving Toward Industrial Toward Industrial CountriesCountries The most important things in this part

are; With new technology to modernize

industries and extract natural resources Between 1996-1999 more than $ 70

billion indirect investment came to CSB countries

Secondly CIS foreign direct investment was confined to the energy rich countries

Poverty Increased Poverty Increased Sharply and Average Sharply and Average Poverty RatesPoverty Rates In the transition period was still one of

extreme hardship for many people Except Easttern Europe and Central

Asia poverty rates decreased in 1998 Not only fall in output but also inequality

in the distribution of income

Explaining Variations in Explaining Variations in Output PerformanceOutput Performance Explanations of economic outcomes can

listed as; 1) the characterstics of countries at the

beginning of transition 2) the shocks resulting from the

breakdown of the central planing system 3) the dissolution of the Soviet Union 4) wars and civil strife 5) the policies to make easy the transition

Did Initial Conditions Did Initial Conditions Affect Performance?Affect Performance? Some conditions may have affected

economic performance. These conditions are listed as;

1) geography

2) years spent under central planing

3) the nature of economic development under socialism

Melo, Denizer and Gelb used some indicators

Influence of initial conditions on the economic performance

These indicators are;

*structure

*distortions

*instutions

These indicators include some variables to each other:

1) Structure

* share of industry in GDP

* degree of urbanization

* trade dependence

* natural resource endowment

* income

2) Distortions

* repressed inflation

* black market exchange rates

* terms of trade loss for the CIS

* reform history

* pretransition growth rate

3) Instutions

* market memory

* location

* new states

External Economic External Economic Shocks Delayed RecoryShocks Delayed Recory There is severe shocks. These shocks

are listed as;

* Financial crises of the 1990s (Mexico, East Asia and Russia)

* War and civil strife (Armenia, Azerbaijan and Tajikistan 1992-94, Georgia and Moldova in 1992, Croatia and FYR Macedonia in 1991-94)

Policies – Do They Policies – Do They Matter?Matter? There should be reforms These reforms ought to be broad

consensus

* macroeconomic stabilization

* price and trade liberalization

* imposition of hard budget constraints on banks and enterprises

* enabling environment for private sector development

* reform of the tax system

* legal and judicial reform

* reform of the public sector instutions

The extent of economic policy reform could be measured by liberalization index

measures reforms for allocating resources includes reforms to maintain the efficient

functioining of markets

What Initial Conditions Matter and When Do They Matter? Initial conditions are more important

factors Initial conditions explains economic

growth during 1990-1994 with 51 percent

During the decade, initial conditions define average growth 41 percent

ConclusionConclusion

Initial conditions can not be changed However policies can be advanced Effective and modern public economy

should composed Instutional arrangements should be

done

Compliance costs should be decreased Local and small businesses complain to

defraudation CSB countries which had good initial

conditions and with radical decisions were successful

CIS countries could not achieve the evolution of democracy

Also these countries were unsuccessful to make reforms

They are not close to the Western markets

Thanks for your listening