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Transition and the output fall

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

Record type: Article


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


Local EPrints ID: 33458
ISSN: 0967-0750
PURE UUID: ff8f701d-e91e-49bc-84d9-b7dde4e0351a

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Date deposited: 14 Dec 2007
Last modified: 17 Jul 2017 15:52

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Author: Gérard Roland
Author: Thierry Verdier

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