Lessons from economies in transition from central planning

Abstract

Over the past decade more than 30 countries have been in transition from a centrally planned economy to a more market-based economic system. These countries exhibit a huge range in size and in income levels as well as in historical and cultural backgrounds and in resource endowments. Despite the variety of initial conditions, the number and variety of countries provides us with a unique natural experiment of the effects of different approaches to establishing and organising a market-based economy. What is involved in 'transition'? Administered resource allocation by central planners is replaced by allocation of resources in response to market signals. This requires (i) market-determined prices, and (ii) agents responding to market incentives-or more succinctly: Transition = price liberalisation + enterprise reform.