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What are the challenges for transition economies?

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.

  • Inequality and informality in transition and emerging countries Updated

    A bidirectional relationship between informality and inequality exists; in transition and emerging countries, higher informality decreases inequality

    Roberto Dell'Anno, April 2021
    Higher inequality reduces capital accumulation and increases the informal economy, which creates additional employment opportunities for low-skilled and deprived people. As a result, informal employment leads to beneficial effects on income distribution by providing sources of income for unemployed and marginalized workers. Despite this positive feedback, informality raises problems for public finances and biases official statistics, reducing the effectiveness of redistributive policies. Policymakers should consider the links between inequality and informality because badly designed informality-reducing policies may increase inequality.
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  • Encouraging women’s labor force participation in transition countries Updated

    Government policies can stimulate female labor force participation if coherent and well thought-out

    Norberto Pignatti, November 2020
    Increasing women's labor force participation is important to sustainable economic development, especially in economies with highly educated women and an aging population. Women's participation varies across transition countries, driven by such economic and social factors as traditional views of gender roles and limited government support for caregivers. Still, in all countries there is clear scope for policies aimed at increasing women's participation. In particular, in countries where women's educational attainment is already high, policies to support a better work–life balance and female entrepreneurship look particularly promising.
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  • Does accession to the EU affect firms’ productivity?

    State capture and uneven infrastructure development due to foreign direct investment can outweigh productivity gains

    Firms in the new EU member states of Eastern Europe are more productive than those in other transition economies, but with a diminishing advantage. The least productive firms benefit the most from membership, although the situation is reversed in the case of foreign-owned firms. Foreign direct investment fails to promote knowledge and technology spillovers beyond the receiving firms. The dominance of multinational enterprises in the new EU member states enhances the threat of corporate state capture and asymmetric infrastructure development, whilst access to finance remains a constricting issue for all firms.
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  • The automotive industry in Central Europe: A success?

    The automotive industry has brought economic growth, but a developmental model based on foreign capital is reaching its limits

    Lucia Mýtna Kureková, September 2018
    Central Europe has experienced one of the most impressive growth and convergence stories of recent times. In particular, this has been achieved on the back of foreign-owned, capital-intensive manufacturing production in the automotive sector. With large domestic supplier networks and high skill intensity, the presence of complex industry yields many economic benefits. However, this developmental path is now reaching its limits with the exhaustion of the available skilled workforce, limited investments in upgrading and research, and persistent regional inequalities.
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  • Returns to language skills in transition economies

    Speaking English has its benefits in transition countries but can it supersede Russian?

    Astghik Mavisakalyan, December 2017
    In many transition countries, the collapse of communism ushered in language reforms to adapt to the newfound independence from the Soviet Union and openness to the rest of the world. Such reforms may have implications for individuals’ economic opportunities, since foreign language proficiency may enhance or signal productivity in the labor market. Recent empirical evidence documents positive labor market returns to English language skills in transition countries. However, Russian language proficiency also remains economically valuable, and nationalist language policies may lead to future loss of economic opportunities.
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  • 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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