In the countries of Central and Eastern Europe and the former Soviet Union, the early transition phase was marked by a substantial fall in output. This decline has been the subject of extensive research, and been attributed to a multitude of factors. A new IMF working paper by Julian Berengaut and Katrin Elborgh-Woytek, Who is Still Haunted by the Specter of Communism? Explaining Relative Output Contractions Under Transition, takes another look at this debate over output decline under transition, taking into account institutional developments (as proxied by measures of corruption) as an intermediate variable. The authors note that:
Although the recovery of output has been under way for some time in most of the transition economies, most of them have not yet fully recovered to pre-transition levels. In this sense, the specter of communism is still haunting these economies.
The paper analyses the initial output decline in transition economies by estimating a cross-section model stressing two major factors - conflicts and the legacies of the Soviet period. They link the Soviet legacies in place at the outset of the transition to the subsequent path for the development of market-related institutions:
The empirical results suggest that more than 60 percent of the variance in relative output performance among transition economies can be attributed to just two factors - conflicts and institutions.
Though the authors conclude that "the nature of Soviet legacies needs to be analyzed further", this is a useful framework for such analysis.
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