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The risks and challenges of economic transition

Since 1989, post-communist countries have undergone considerable changes in their political, economic, and social structures and institutions as they have transitioned to market economies. Many people have migrated from the region to other countries (e.g. the UK), to live and work, whilst those left behind have found themselves facing severe political unrest and economic uncertainty—characterized by rising levels of inequality, increased rates of unemployment and greater job informality, plus a mortality crisis and a significant drop in GDP and life satisfaction. While the economies are recovering, the “human costs” of transition (e.g. increased rates of alcoholism and a so-called “iron curtain of unhappiness”) persist.

  • Youth unemployment in transition economies

    Both general and age-specific policies are necessary to reduce youth unemployment in transition economies

    Marcello Signorelli, November 2017
    The 2008 financial crisis and subsequent Great Recession created a second major employment shock in less than a generation in several transition economies. In particular, youth unemployment rates, which are usually higher than adult rates in normal times, reached extremely high levels and partly tended to persist over time. Improving youth labor market performance should therefore be a top priority for policymakers in affected transition countries. Better understanding of the dynamics of national and regional youth unemployment rates and other associated indicators is particularly important for designing effective policy approaches.
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  • Political connectedness and formal finance in transition economies

    Policies to increase formal finance to smaller firms requires improving the functioning of government bureaucracies

    Kobil Ruziev, November 2017
    Although small- and medium-sized enterprises (SMEs) represent more than 90% of all enterprises and play an important role in employment generation, they lack access to affordable formal finance. Conventionally, market failures and information imperfections are seen as majorcauses of this misallocation. However, the role of social and political factors in resource allocation, including access to formal finance, has recently become more widely accepted. Firm-level evidence from post-communist economies, for example, shows that political connectedness improves access to bank credit, but is not associated with enterprise growth.
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  • Wage policies in the public sector during wholesale privatization

    Does the transition to market economies imply growing wage inequality and, if so, along what dimensions?

    Jelena Nikolic, October 2017
    Examining the implications of changes in public sector wage-setting arrangements due to privatization is a relatively new area of economics research, with few studies having analyzed the effects of public sector restructuring on relative wages in developed countries. There is, however, a growing empirical literature that measures the effects of transitioning from central planning to market-based systems on public–private sector wage differentials. Policymakers can learn from this evidence about the ways in which ownership transformation affects the distribution of wages in both the public and private employment sectors.
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  • Can diversity encourage entrepreneurship in transition economies?

    Harnessing the benefits of diversity is essential for encouraging entrepreneurship in the transition region

    Elena Nikolova, May 2017
    Entrepreneurship is an important lever for spurring transition in the economies of the former Soviet Union and Central and Eastern Europe. Utilizing diversity, in terms of religion or gender, can positively affect entrepreneurial development. Programs that encourage entrepreneurial initiatives (such as business start-ups) in culturally diverse localities should rank high on the policy agenda. Prompting women to start a business, along with female-friendly measures (including targeted legislation), can positively affect entrepreneurial behaviour and the performance of existing enterprises.
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  • The happiness gap between transition and non-transition countries

    Economic progress coupled with political and institutional stability is needed to reduce unhappiness

    Ekaterina Skoglund, May 2017
    Since 1989, post-communist countries have undergone profound changes in their political, economic, and social structures and institutions. Across a range of development outcomes—in terms of the speed and success of reforms—transition is an “unhappy process.” The “happiness gap,” i.e. the difference in average happiness levels between the populations of transition and non-transition economies, is closing, but at a slower pace than the process of economic convergence. Economic growth, as the determinant of a country’s collective well-being, has been superseded by measurements of institutional quality and social development.
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  • Female poverty and intrahousehold inequality in transition economies

    An unequal distribution of resources within the family is a special concern for female poverty

    Luca Piccoli, March 2017
    Transition to a market economy is accompanied by a period of greater economic uncertainty. Women are likely to suffer substantial disadvantages from this uncertainty compared to men as they are, for example, more likely to lose their job. This not only implies a monetary loss for the entire family, but also degrades female bargaining power within the household, possibly further aggravating their well-being. When intra-household inequality—an unequal distribution of resources among family members—exists, female poverty might be significantly larger than what can be deduced using standard household based poverty measures.
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