Transition and the output fall

Roland, Gérard and Verdier, Thierry (1999) Transition and the output fall. Economics of Transition, 7, (1), 1-28. (doi:10.1111/1468-0351.00002).


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We present a model to explain why in the transition economies of Central and Eastern Europe an important output fall has been associated with price liberalization. Its key ingredients are search frictions and Williamsonian relation-specific investment, implying that new investments are made only after having found a new long-term partner. When all firms search for new partners, output may fall because of three effects: a) disruption of previous production links, b) a fall in investment, and c) capital depreciation due to the absence of replacement investment. We show that forms of gradual liberalization like the Chinese 'dual-track' price liberalization may avoid the transitory output fall.

Item Type: Article
Digital Object Identifier (DOI): doi:10.1111/1468-0351.00002
ISSNs: 0967-0750 (print)
Related URLs:
Subjects: H Social Sciences > HB Economic Theory
Divisions : University Structure - Pre August 2011 > School of Social Sciences > Economics
ePrint ID: 33458
Accepted Date and Publication Date:
July 1999Published
Date Deposited: 14 Dec 2007
Last Modified: 31 Mar 2016 11:59

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