Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/59139 
Year of Publication: 
2009
Series/Report no.: 
Center Discussion Paper No. 982
Publisher: 
Yale University, Economic Growth Center, New Haven, CT
Abstract: 
This paper addresses whether the initial declines in the manufacturing and real wages in transition economies were anything unexpected to justify policy reversal, and whether the often-recommended foreign aid would have helped them curb these declines in any significant way. It answers these questions with the help of a two-sector three-factor small open economy model and simulation exercises. It concludes that, given the relative price distortions and the market disequilibria that transition economies inherited from their planning era, the initial declines in their manufacturing and real wages are to be mostly expected. Foreign aid, whose mpact is noticeable only when it is in excess of 5% of GDP, does not curb the decline in their real wages in any measurable way and exacerbates the decline in their manufacturing by a few percent.
Subjects: 
liberalization
structural adjustment
transition economies
East European economies
Soviet Republics
foreign aid
JEL: 
P2
Document Type: 
Working Paper

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