Abstract

http://ssrn.com/abstract=5207
 
 

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The Optimal Speed of Transition: A General Equilibrium Analysis


Micael Castanheira


Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Centre for Economic Policy Research (CEPR)

David Roland-Holst


Mills College and CEPR; Centre for Economic Policy Research (CEPR)

July 1996

CEPR Discussion Paper Series Number 1442

Abstract:     
We present in this paper a bench-mark model for the optimal speed of transition from a state-owned to a private market economy, based on the consumption-savings decision in a closed economy. This bench-mark model abstracts from rigidities or frictions to focus on the macroeconomic conditions for accumulation of private capital and closure or restructuring of state-owned enterprises (SOEs). It is shown that an excess rate of closure of SOEs, compared to the welfare optimum, generates a substitution effect that accelerates the pace of transition, and an income effect that slows down transition. When the latter effect dominates, too high a speed of closure of SOEs may result in suboptimally slow growth of the private sector. This will especially be the case if such a deviation occurs at an early stage of transition. Lastly, the model sheds some light on macroeconomic contraction in Central and Eastern Europe in the early phase of transition.

JEL Classification: E21, E61, P41, P51

working papers series


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Date posted: September 16, 1999  

Suggested Citation

Castanheira, Micael and Roland-Holst, David, The Optimal Speed of Transition: A General Equilibrium Analysis (July 1996). CEPR Discussion Paper Series Number 1442. Available at SSRN: http://ssrn.com/abstract=5207

Contact Information

Micael Castanheira
Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )
Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
+32 2 650 4467 (Phone)
+32 2 650 3369 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
David Roland-Holst (Contact Author)
Mills College and CEPR ( email )
5000 MacArthur Boulevard
Kimball House-13
Oakland, CA 94613-1301
United States
510-430-2248 (Phone)
510-430-2304 (Fax)
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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