Transition and the output fall
Transition and the output fall
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.
1-28
Roland, Gérard
5031659d-3130-4ab9-9327-ccf55d1e03ad
Verdier, Thierry
87c483ea-f473-408f-9776-d0381cab6454
July 1999
Roland, Gérard
5031659d-3130-4ab9-9327-ccf55d1e03ad
Verdier, Thierry
87c483ea-f473-408f-9776-d0381cab6454
Roland, Gérard and Verdier, Thierry
(1999)
Transition and the output fall.
Economics of Transition, 7 (1), .
(doi:10.1111/1468-0351.00002).
Abstract
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.
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Published date: July 1999
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Local EPrints ID: 33458
URI: http://eprints.soton.ac.uk/id/eprint/33458
ISSN: 0967-0750
PURE UUID: ff8f701d-e91e-49bc-84d9-b7dde4e0351a
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Date deposited: 14 Dec 2007
Last modified: 15 Mar 2024 07:44
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Author:
Gérard Roland
Author:
Thierry Verdier
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