Reform Reversal in Former Transition Economies (FTEs) of the European Union: Areas, Circumstances and Motivations

75 Pages Posted: 30 Nov 2020

See all articles by Melanie E. Ward-Warmedinger

Melanie E. Ward-Warmedinger

European Commission; IZA Institute of Labor Economics; European Central Bank (ECB); Centre for Economic Policy Research (CEPR)

István P. Székely

European Commission, DGECFIN; Corvinus University of Budapest

Date Written: October 9, 2018

Abstract

The rapid journey from central planning to EU (euro area) membership stress-tested the social learning processes of the Former Transition Economies (FTEs). The desire for a higher standard of living, to be anchored to the West, and to enter the EU, spurred major reform waves and led to the very rapid introduction of best-practice institutions. Although social learning accompanied this process, in many FTEs it was not fast enough to keep pace with the rapid reforms, leaving best-practice institutions with social norms that were not sufficiently strong to maintain them. As a result, wide-spread reform reversals emerged in the region. Such reform reversals appeared as formal reversals, which changed legislation (or formal rules), and behavioral reversals, which eroded the quality of an institution by materially changing the way it worked. It was frequently the interaction of reversals in different sectors that created a full-blown reform reversal episode, with the financial sector particularly prone to behavioral reversals, both in public and private institutions. External anchors such as the Washington institutions played a dominant role in shaping the transition process. Along with the EU accession process, the EU acted as a strong anchor that could prevent or reverse formal reform reversals in areas covered by EU law, but could play a much weaker role in the case of behavioral reversals. Our analysis naturally leads to the conclusion that the ultimate solution to prevent reform reversals is to accelerate social learning processes that strengthen the national ownership of reforms. It is also important to focus on the quality and internal coherence of reforms and newly created institutions.

Keywords: reform reversals, social norms, institution building, European Union, transition economies

JEL Classification: E6, H5, G2, J48, O5, P2

Suggested Citation

Ward-Warmedinger, Melanie E. and Szekely, Istvan P., Reform Reversal in Former Transition Economies (FTEs) of the European Union: Areas, Circumstances and Motivations (October 9, 2018). IZA Discussion Paper No. 142, Available at SSRN: https://ssrn.com/abstract=3708211 or http://dx.doi.org/10.2139/ssrn.3708211

Melanie E. Ward-Warmedinger

European Commission ( email )

BU-1 05/190
Brussels, Bruxelles B-1049
Belgium

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Istvan P. Szekely (Contact Author)

European Commission, DGECFIN ( email )

CHAR 15/216
Brussels, Bruxelles B-1040
Belgium
+3222958674 (Phone)

Corvinus University of Budapest ( email )

Budapest
Hungary

HOME PAGE: http://www.uni-corvinus.hu/index.php?id=22061

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