INTRODUCTION Output fell sharply Private enterprises overtook the state sector Exports rose-Moving toward industrial countries Poverty increased sharply Average poverty rates ( )

 Explaining variation in output performance  Initial conditions  External economic shocks  Policies  What initial conditions matter  Conclusion

Output Fell Sharply  Onset of the transition there was a sharp initial fall  On the next page the figure shows us this initial fall

 Then fast recovery and sustainable growth followed  Another page shows us this situation

 The CIS had an average of 6.5 years of declining output  The CIS had recovered only 63 percent of its starting GDP values  Poland had the shortest and mildest recession  Armenia, Georgia and Moldova saw the steepest declines  Industry and agriculture declined by about 9 percent of GDP in CIS

Industry Shrank and Services Grew  CSB and CIS shifted to market economy  These two groups had economic liberalization  Industry shrank and services grew  The table show us this situation

Private Enterprises Overtook the State Sector  After shifted to market economy, private sector grew  Show as:

Export Rose-Moving Toward Industrial Countries  The most important things in this part are;  With new technology to modernize industries and extract natural resources  Between more than $ 70 billion indirect investment came to CSB countries  Secondly CIS foreign direct investment was confined to the energy rich countries

Poverty Increased Sharply and Average Poverty Rates  In the transition period was still one of extreme hardship for many people  Except Easttern Europe and Central Asia poverty rates decreased in 1998  Not only fall in output but also inequality in the distribution of income

Explaining Variations in Output Performance  Explanations of economic outcomes can listed as; 1) the characterstics of countries at the beginning of transition 2) the shocks resulting from the breakdown of the central planing system 3) the dissolution of the Soviet Union 4) wars and civil strife 5) the policies to make easy the transition

Did Initial Conditions Affect Performance?  Some conditions may have affected economic performance. These conditions are listed as; 1) geography 2) years spent under central planing 3) the nature of economic development under socialism

 Melo, Denizer and Gelb used some indicators  Influence of initial conditions on the economic performance  These indicators are; *structure *distortions *instutions

 These indicators include some variables to each other: 1) Structure * share of industry in GDP * degree of urbanization * trade dependence * natural resource endowment * income

2) Distortions * repressed inflation * black market exchange rates * terms of trade loss for the CIS * reform history * pretransition growth rate

3) Instutions * market memory * location * new states

External Economic Shocks Delayed Recory  There is severe shocks. These shocks are listed as; * Financial crises of the 1990s (Mexico, East Asia and Russia) * War and civil strife (Armenia, Azerbaijan and Tajikistan , Georgia and Moldova in 1992, Croatia and FYR Macedonia in )

Policies – Do They Matter?  There should be reforms  These reforms ought to be broad consensus * macroeconomic stabilization * price and trade liberalization * imposition of hard budget constraints on banks and enterprises

* enabling environment for private sector development * reform of the tax system * legal and judicial reform * reform of the public sector instutions

 The extent of economic policy reform could be measured by liberalization index  measures reforms for allocating resources  includes reforms to maintain the efficient functioining of markets

What Initial Conditions Matter and When Do They Matter?  Initial conditions are more important factors  Initial conditions explains economic growth during with 51 percent  During the decade, initial conditions define average growth 41 percent

Conclusion  Initial conditions can not be changed  However policies can be advanced  Effective and modern public economy should composed  Instutional arrangements should be done

 Compliance costs should be decreased  Local and small businesses complain to defraudation  CSB countries which had good initial conditions and with radical decisions were successful

 CIS countries could not achieve the evolution of democracy  Also these countries were unsuccessful to make reforms  They are not close to the Western markets

Thanks for your listening